Ah Spring is here and that means all the property spruikers come out trying to talk up the market. In the last week alone I have seen this, this, this, this, and this. And I haven’t spent much time surfing the web either so there have probably been many more.
I’ve previously written here, here, and here about the many people that have a self-interest in propping up the housing market.
Current homeowners want prices to increase so they feel richer.
Insurance companies want house prices to increase so they receive higher premiums.
Councils want house prices to increase so they receive higher rates.
Governments want house prices to increase so its largest voting base feel richer, not to mention the fact that it benefits the members of parliament, the majority of which are homeowners.
Banks want house prices to increase so they have higher loan values on their books.
Mortgage advisers want house prices to increase so they get higher commissions.
Real Estate companies obviously want house prices to increase so they can receive higher commissions and they love that people start feeling richer as there is more activity in the market.
Bank economists want house prices to increase, and they frequently say they will, because they are paid by the banks and no bank wants an economist to say things look bad. No conflict of interest there right?
Accountants want people to buy houses so they have more clients on their books.
Investors want house prices to increase so they can sell to a bigger fool.
Research companies, such as REINZ and One Roof, want house prices to increase because they are in bed with those in the real estate industry. How can we trust such blatant impartiality?
Media outlets want house prices to increase because it is what gets the most clicks.
The trades want house prices to increase because when people feel richer they spend more on building, repairs and improvements.
Unless you are renting, that doesn’t leave a lot of people that do not have a biased opinion of the housing market. Almost everyone has a self-interested reason in wanting house prices to surge. They all profit from the capital appreciation of this bubble.
People who have recently bought also become vested in seeing this insanity continue and will join the chorus and talk the market up accordingly.
Housing is such a large expense for many in New Zealand, that we are not left with much money at the end of the month. Entirely due to our severely overpriced houses. But all the people mentioned above don’t say that they are overpriced. They all want people to think now is a good time to buy.
They will say that the rapid growth over the last 10-20 years is strong and sustainable growth driven by value fundamentals, and not a bubble. They will propose that the rules of economics have been re written and the fact that income has decoupled from asset prices doesn’t matter.
But economic fundamentals do matter. House price affordability matters. There is nothing new that means these fundamentals are no longer relevant. House prices must not drift too far from incomes for too long. It’s just not economically and financially sustainable.
As at July this year, NZ was number 1 in the world when measured against house prices to rent, and house prices to income. This means that house prices are rising much faster than rental incomes and personal incomes. This is not something we should want the country to be number one in. But for all those who profit from this madness they don’t care. They will keep peddling the tired old rhetoric that “there is nothing to see here”.
New Zealanders house prices currently rank as the second most unaffordable in the world according to the most recent data available.
The median house price is 6.4 times median household income. 8.6 times in Auckland. Anything over 5.1 is considered severely unaffordable.
New Zealand’s household debt levels are at a historic high of 164% of income.
Kiwisaver is not helping house prices
Even our retirement scheme, Kiwisaver, makes it easier for people to buy homes. You know what happens when you make it easier to buy a home?
Yep, house prices increase due to artificially fueled demand.
Effectively meaning we are no better off.
And now, which is what has prompted this article/rant, the acting retirement commissioner starts talking about hare-brained ideas such as allowing kiwis to tap in to Kiwisaver to buy investment properties.
Thereby artificially prioritising one type of investment (rental properties) over other investments such as stocks. That is a surefire way to push house prices up yet again. Again defeating the purpose of making it easier to buy in the first place.
Kiwisaver is not the answer to our housing unaffordability.
If we can’t afford houses without tapping into our retirement money what does that tell us? That houses are too expensive.
We need to stop listening to all the experts who have a finger in the housing pie, and stop putting home ownership on such a high pedestal. You wouldn’t pay $40,000 for a $25,000 car, so why are we willing to pay so much extra for houses.
I understand why Kiwisaver has been allowed to use as a tool for first home buyers. I get it. Home ownership rates are declining and more people are working past the age of 65. Retirement is getting harder, and not owning a home can make it that much harder, especially if you haven’t been investing the difference.
But meddling with Kiwisaver is not the answer.
I’m not a big fan of having such easy access to Kiwisaver at all as discussed here, here, and here. So to add investment properties to the exemptions would be a terrible idea in my opinion. It will further inflate house prices over other assets.
Which defeats the purpose of bringing it in the first place. It’s trying to make housing more affordable, but it is having the opposite effect. Housing is more unaffordable.
Yes owning a house is great, but at the expense of having enough saved for retirement? You can’t eat your house. You need money to live. Your house doesn’t pay the bills. And with such high mortgage repayments, it’s not looking good for future retirees.
Final thoughts
We can’t continue to leave matters to the free market and then continue to be stunned by the inconvenient fact that the market acts in its own best interests. The free market is in bed with the housing market.
I don’t blame the people using Kiwisaver to buy houses. They are only doing what they need to secure a house. They are doing the best they can with the hand they have been dealt. The problem is the game is rigged.
People in power will say they care about housing affordability, but no one is actually doing anything about it because they know if they do, they will be voted out of their responsibilities and lose their position of power.
If we could all stop fantasising about home ownership and stop the willingness to pay any price, maybe prices can creep towards a level of affordability. If you can’t afford a house without using Kiwisaver, that is too expensive. Retirement savings should be for retirement, and we are doing our future selves a huge disservice by raiding our accounts too early.
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