Category Archives: Housing in NZ

New Zealand’s political leadership has failed for decades on housing policy – Shamubeel Eaqub. 

New Zealand’s political leadership has failed for decades on housing policy, leading to the rise of a Victorian-style landed gentry, social cohesion coming under immense pressure and a cumulative undersupply of half a million houses over the last 30 years.

House prices are at the highest level they have ever been. And they have risen really, really fast since the 90s, but more so since the early 2000s and have far outstripped every fundamental that we can think of.

After nearly a century of rising home ownership in New Zealand, since 1991 home ownership has been falling. In the last census, the home ownership rate was the lowest level since 1956. And for my estimate for the end of 2016, it’s the lowest level since 1946.

We’ve gone back a long way in terms of the promise and the social pact in New Zealand that home ownership is good, and if you work hard you’re going to be able to afford a house.

The reality is that that social pact, that right of passage has not been true for many, many decades. The solutions are going to be difficult and they are going to take time.

Before you come and tell me that you paid 20% interest rates, the reality is that, yes interest rates are much lower. But the really big problem is, house prices have risen so much that it’s almost impossible in fact to save for the deposit. People could have saved a deposit and paid it off in about 20-30 years in the early 1990s. Fast forward to today, and that’s more like 50 years. How long do you want to work to pay off your mortgage?

What we’re talking about is the rise of Generation Rent. Those who manage to buy houses are in mortgage slavery for a long period of time.

There is a widening societal gap. If younger generations want to access housing, it’s not enough to have a job, nor enough to have a good job. You must now have parents that are wealthy, and home-owners too. The idea of New Zealand being an egalitarian country is no longer true. The kind of societal divide we’re talking about is very Victorian. We’re in fact talking about the rise of a landed gentry.

For those who are born after the 1980s, the chance of you doing better than your parents are less than 50%.

What we’re creating is a country where opportunities are going to be more limited for our children and when it comes to things like housing, than ourselves. I worry that what we’re creating in New Zealand is a social divide that is only going to keep growing. This is only one manifestation of this divide.

There has been a change in philosophy in what underpins the housing market. One very good example is what we have done with our social housing sector.

Housing NZ started building social housing in the late 1930s and stock accumulated over the next 50-60 years to a peak in 1991.

Since then we have not added more social housing. On a per capita basis we have the lowest number of social housing in New Zealand since the 1940s.

This is an ideological position where we do not want to create housing supply for the poor. We don’t want to. This is not about politicians. This is a reflection on us. It is our ideology, it is our politics. Our politicians are doing our bidding. The society that we’re living in today does not want to invest in the bottom half of our society.

The really big kicker has been credit. Significant reductions in mortgage rates over time have driven demand for housing. But we have misallocated our credit. We’re creating more and more debt, but most of that debt is chasing the existing houses. We’re buying and selling from each other rather than creating something new. The housing boom could not have happened on its own. The banking sector facilitated it. We have seen more and more credit being created and more of that credit is now more likely to go towards buying and selling houses from each other rather than funding businesses or building houses.

One of the saddest stories at the moment is, even though we have an acute housing shortage in Auckland, the most difficult to find funding for now is new developments. When the banks pull away credit, the first thing that goes is the riskiest elements of the market.

Seasonally adjusted house sales in Auckland are at the lowest level since 2011. This is worrying because what happens in the property market expands to the economy, consents and the construction sector.

I fully expect a construction bust next year. We are going to have a construction bust before we have a housing bust. We haven’t built enough houses for a very long period of time. And if we’re going to keep not building enough houses, I’m not confident that whatever correction we have in the housing market is going to last.

New money created in the economy is largely chasing the property market. Household debt to GDP has been rising steadily since the 1990s. People were now taking on more debt, but banks have started to cut back on the amount of credit available overall.

For every unit of economic growth over the course of the last 10, 20 years, we needed more and more debt to create that growth. We are more and more addicted to debt to create our economic growth.

Credit is now going backwards. If credit is not going to be available in aggregate, we know the biggest loses are in fact going to be businesses and property development.

It means we are not going to be building a lot of the projects that have been consented, and we know the construction cycle is going to come down. I despair.

I despair that we still talk so much more about buying and selling houses than actually starting businesses. The cultural sclerosis that we see in New Zealand has as much to do with the problem of the housing market as to do with our rules around the Resource Management Act, our banking sector.

On demand, we know there’s been significant growth in New Zealand’s population. Even though it feels like all of that population growth has come from net migration, the reality is that it’s actually natural population growth that’s created the bulk of the demand.

But net migration has created a volatility that we can’t deal with. A lot of the cyclicality in New Zealand’s housing market and demand, comes from net migration and we simply cannot respond.

We do know that there is money that’s global that is looking for a safe haven, and New Zealand is part of that story. We don’t have very good data in New Zealand because we refuse to collect it. There is a lack of leadership regarding our approach to foreign investment in our housing market.

Looking at what’s happening in Canada and Australia would indicate roughly 10% of house sales in Auckland are to foreign buyers. Yes it matters, but when 90% of your sales are going to locals, I think it’s a bit of a red herring.

Historical context of where demand for housing comes from shows the biggest chunk is from natural population growth. The second biggest was from changes in household size as families got smaller – more recently that has stopped, ie kids refusing to leave home.

There has been a massive variation in what happens with net migration.

New Zealand needs about 21,000 houses a year to keep up with population growth and changes that are taking place. But over the course of the last four years, we’ve needed more like 26,000. We’re nowhere near building those kinds of houses.

This means we need to think about demand management from a policy perspective. It’s more about cyclical management rather than structural management.

Population growth has always been there. Whether it’s from migration or not doesn’t matter. The problem is our housing market, our land supply, our infrastructure supply, can’t keep up with any of it.

While immigration was a side problem it nevertheless was an important conversation to have due to the volatility that can be created. I struggle with the fact that we have no articulated population strategy in New Zealand. We have immigration because we have immigration. That’s not a very good reason.

Why do we want immigration, how big do we want to be, do you want 15 million people or do you want five?

What sort of people do we want? Are we just using immigration as shorthand for not educating our kids because we can’t fill the skills shortages that we have in our industries?

Let’s not pretend that it’s all about people wanting to live in houses.

You’d be very hard pressed to argue that people want to buy houses in Epsom at a 3% rental yield for investment purposes. They want to buy houses in Epsom at 3% rental yield because they want to speculate on the capital gains. Let’s be honest with ourselves.

If your floating mortgage rate is 5.5% and you’re getting 3% from your rent, what does that tell you about your investment? It tells you that you’re not really doing it for cash-flow purposes. You’re doing because you expect capital gains, and you expect those capital gains to compensate you.

The real story in Auckland is that a lot of additional demand is coming from investment.

Land supply in New Zealand is slow, particularly in places like Auckland. But it’s not just in terms of sections, it’s also about density. The Unitary Plan was a win for Auckland. The reality is that if we only do greenfields, we will just see more people sitting out in traffic at the end of Drury.

The majority of New housing supply are large houses, when the majority of new households being formed are 1-2 person households.

Between the last two censuses, most of the housing stock built in New Zealand were four bedrooms or more. In contrast, the majority of households that were created were people that were single or couples. We have ageing populations, we have the empty nesters, we have young people who are having kids later…and we’re building stand-alone houses, with four bedrooms.

We have to think very hard about how to create supply not just for the top end, even though we know in theory building just enough houses is good for everybody, when you’re starting from a point of not enough houses, it means the bottom end gets screwed for longer. We have to think very hard about whether we want to use things like inclusionary zoning; we have to think very hard about what we want to do with social housing.

Right now we’re not building houses for everybody in our community. We are failing by building the wrong sorts of houses in our communities.

Right at the top is land costs. If we think about what has been driving up the cost of housing, the biggest one is the value of land. It’s true that we should also look at what’s happening in the rental market and what was happening with the costs of construction. But those are not the things that have been the majority driver of the very unaffordable house prices that we see in New Zealand today.

The biggest constraint is in land, and that is where the speculation is taking place.

We know we’re not building enough. In the 1930s to 1940s we had very different types of governments and ideology. We actually built more houses per capita back then than we have in the last 30 years.

In the late 40s-early 70s, with the rise of the welfare state and build-up of infrastructure. On a per capita basis, we built massive amounts of houses.

But since the oil shock and the 1980s reforms, we have never structurally managed to build as many houses as we did pre-1980. That cumulative gap between the trend that we have seen in the last 30 years, versus what we had seen in the 40s, 50s and 60s, is around half a million houses.

So there is something that is fundamentally and structurally different in what we have done in terms of housing supply in New Zealand over a very long period of time.

The changes in the way that we do our planning rules, the advent of the RMA, the way that we fund and govern our local government. All these things have changed. So the nature of the provision of infrastructure, the provision of land, then provision of consents, all of these things have changed massively. But the net result is we’re not building as many houses, and that is a fundamental problem.

In Auckland there is a massive gap between targets set by government for house building over the past three years and the amount of consents issued. On top of this, the targets themselves were still not high enough.

Somehow we’re still not able to respond to the growth that Auckland is facing. Consistently we have underestimated how many people want to live in a place like Auckland.

But it’s not just Auckland. Carterton surprises every year, it’s because they’ve got a fantastic train line and people live there, it’s not surprising.

But we are failing. We have been failing and we continue to fail. We have to be far more responsive and we have to have a much longer time horizon to have the provision for housing that’s needed.

There is in fact no real plan. The Unitary Plan is fantastic in that it actually plans for just enough houses for the projections for population. We can confidently say that projection is going to be pessimistic, we’re going to have way more people in Auckland.

Trump and Brexit have marked a shift in politics and a polarisation in the public’s view of politics. In New Zealand I think one of the catalysts could be Generation Rent. In the last census, 51% of adults, over 15 year olds, rented. It is no longer the minority that rent, but the majority of individuals that rent.

I’m not saying we’ll see the same kind of uprising in New Zealand, but what we saw in Brexit was that discontent was the majority of voters. If young people had actually turned up to vote, Brexit wouldn’t have happened. The same is true for New Zealand.

It is strange that there was no sense of crisis or urgency. For a lot of the voters, things are just fine. For the people for whom it’s not fine, they’re not voting and they feel disengaged.

The kind of politics that we will start to see in the next 10 years is something much more activist, the ‘urgency of now’.

The promise of democracy is to create an economy that is fit for everyone. It is about creating opportunities for everyone. Right now, particularly when it comes to housing, we are failing. We are not creating a democratic community when it comes to our housing supply because young people are locked out, because young people are going to suffer, and we know there are some big differences across the different parts of New Zealand.

It’s not going to be enough, when we’re starting from a position of crisis, to simply create more housing that will appease the public. We have to make sure that we’re far more activist in making sure that we’re creating housing that is fit for purpose, not just for the general populous, but for the bottom half who are clearly losing out from what is going on.

We know what the causes are. I’m sick of arguing why we’re here. We know why we’re here, because we haven’t ensured enough political leadership to deal with the problems that are there.

We can’t implement the solutions unless we have political leadership, political cohesion, and endurance over the political cycle. This is a big challenge, but a big opportunity.

Shamubeel Eaqub

***

  • There has been a cumulative 500,000 gap in housing supply over the last 30 years.
  • Eaqub predicted a construction bust next year, led by banks tightening lending.
  • It’s remarkable NZ authorities do not have proper data on foreign buyers. While he estimates 10% of purchases in Auckland are made by foreign investors, he said the main focus should be on the other 90% by local.
  • However, migration creates cyclical volatility that we can’t deal with; it is unbelievable that New Zealand doesn’t have a stated population policy.
  • New Zealand is still not building the right sized houses – the majority of properties being built in recent years have had four-plus bedrooms, while household sizes have grown smaller
  • The majority of New Zealand’s adult population is now renting. This could be the catalyst for a Brexit/Trump-style rising up of formerly disengaged voters – young people in our case – to engage at this year’s election.
  • New Zealand’s home ownership level is now at its lowest point since 1946.
  • We have a cultural sclerosis of buying and selling existing houses to one another.

interest.co.nz

Young home buyers – Don’t believe the hype – Mark Lister. 

Save hard, wait for the cycle to run its course, then take your opportunities, columnist Mark Lister says.

Struggling first-home buyers seem increasingly frustrated, most recently in response to Herald stories of those who’ve found a way onto the ladder.

It’s even been suggested they give up completely, which isn’t actually a bad idea for a lot of people. Not because they’ve no hope of ever owning one, but because home ownership just isn’t a great deal at today’s prices.

Prices are overheated in many places, especially Auckland. Never before have they risen so quickly or become so detached from what ultimately drives them – namely rents and incomes.

Whenever things have got out of whack like this in the past, prices have fallen sooner or later, so there’s every chance that happens again. Choosing to buy at what could easily be the top of the cycle is a big call, especially if you can’t really afford it.

I can hear the housing bulls scoffing already, citing numerous reasons the old valuation rules don’t apply and “this time it’s different”. Those words were once described as the four most dangerous in investing.

The same one-eyed property types will suggest I’ve got a vested interest in beating this drum, because I’d like more people to invest in shares and bonds, rather than houses.

That’s true, although I wouldn’t recommend taking your life savings, borrowing five times that amount and spending the lot on shares right now either. Or ever, actually.

At least you can stagger your way in to an expensive sharemarket over a period of time. With houses, you have to buy all in one go, so your timing is much more important.

There are genuine reasons house prices have gone up a lot, like building costs, population growth and an undersupply. However, that doesn’t mean they can’t get overvalued.

Low interest rates have also a big part of the price rises, and these could prove temporary. Borrowing costs have never been as low as they are now, so a 2-3 per cent rise to more normal levels will undoubtedly have an impact.

Auckland rents suggest something is amiss in the housing market. In the last six years the average rent has risen 30 per cent, way behind house prices which are up 85 per cent.

Rents are driven almost solely by economic fundamentals, while house prices are influenced by sentiment and speculation. Over the long term prices tend to follow rents, not the other way around.

If you’ve missed the housing boat these last few years, think twice about trying to get on the ladder at all costs today.

Sit back, relax and rent something much nicer than you could afford to buy. Let someone else fork out a fortune in interest, maintenance, rates and insurance on their overpriced asset while you get to enjoy it for a fraction of that.

Renting looks like a bargain at the moment, and it’s not “dead money” any more than home ownership running costs are.

Don’t believe the hype. Just save hard, wait for the cycle to run its course, then take your opportunities.

NZ Herald

Who will fund Auckland’s future? – Liam Dann. 

How will this crazy property cycle end? What will Auckland’s housing market look like in a decade?

Will it be an elite international city where home ownership is the preserve of the rich and privileged?

Will the market overheat and crash, causing financial pain and hardship for many but offering opportunity for a new generation of home buyers?

Or will we resolve the issue, as this Government seems to think we will, with a steady and stable increase of supply to flatten prices?

It’s hard to predict the future. But we can imagine plausible scenarios.

We can also decide what sort of behaviour may be likely to cause those scenarios. We can adjust our behaviour to achieve the scenario we think most desirable.

That’s probably be a bit much to expect. We are talking about property and this is New Zealand. We’ve been arguing about it since at least 1840.

But let’s take a look at what we know about that numbers underpinning Auckland’s surging property prices.

Westpac senior economist Satish Ranchhod has published an excellent report – A Tale of Three Cities – crunching the numbers on the property market in Auckland, Christchurch and Wellington.

His snap shot of the past five years in Auckland paints a troubling picture.

Between 2011 and 2016 Auckland’s population rose by 154,800 or 11 per cent. Meanwhile, the increase in housing stock over the same period was just 6 per cent.

Throw in a period of low interest rates and, what looks like a relatively small shortfall, has had an incredible effect on the market.

Average house prices in Auckland rose 95 per cent between February 2011 and February 2017.

Rents rose 31 per cent over the same period. And median wage growth was 23 per cent.

The Government remains adamant that inequality hasn’t worsened under its watch.

I’m no mathematician but based on those numbers it looks as if people who owned a house in 2011 have become a lot richer. And people who have rented are now poorer.

Luckily I’m in the former camp. Unluckily I have children.

It gets worse.

We’ve had another 50,000 people arrive in Auckland in the past year and projected growth is for 290,200 more between 2018 and 2029.

Don’t get me wrong, I’m not blaming the new arrivals. I was one once. I’ve also lived in and loved cities a lot bigger than Auckland.

Growth and diversity are part of what makes cities a great place to live.

But we need to acknowledge that Auckland is going through an historically unprecedented time of growth.

We need to plan for it. Actually, we needed to plan for it. Instead we argued about it. Government blamed council, council blamed government. We pretended the differences were complex and difficult to resolve.

In reality no one in power was particularly motivated to resolve the issue because so many home-owning Aucklanders were feeling so much richer.

In the past year the Government has grudgingly accepted there is a problem and council has finally introduced its Unitary Plan, clearing a path to faster development.

Here we are then, ready to start dealing with a problem that is already well out of control.

As Ranchhod notes, in a dispassionate way: “Housing market tightness will get worse before it gets better”.

In fact he estimates building levels – which though rising are still not yet at the minimum required to keep up with population growth – will need to stay elevated for another decade to address Auckland’s housing shortfall.

So where will we be in a decade?

Well, we may have a crash, that’d fix it … but it wouldn’t be pretty.

Some think Auckland’s property market can’t crash. It’s true that values for renovated villas in good school districts have never fallen through the floor. But CBD apartments and developments on the city fringe do – almost every decade.

Imagine that we are successful in ramping up supply. But progress is slow so prices keep rising.

We may see tough policies introduced to curb immigration and taxes to deter investors.

If that were to happen just as supply was peaking, we would have all the right conditions for a sudden downturn.

An international banking shock, a spike in interest rates: Bob’s your uncle, all of a sudden there’s a whole bunch of first-home buyers wondering why they paid $900,000 for a two bedroom unit in Helensville … or apartment investors staring into a hole in the ground.

Then again, perhaps we won’t get there on supply in the next decade.

A consensus about the need to build doesn’t mean it is going to happen.

Who will fund all this building? Who will hammer in the nails or plumb the toilets? We have acute skills shortages in the trades, which may put a limit on the pace of building.

If we’re still struggling to keep up in a decade – if house prices have continued to outstrip wage growth as they have in the past five years – this will be a very different city.

It will be a more sterile, less diverse place with gentrification stretching from the Eastern bays to the Waitakere ranges. We’ll have an underclass of transient service workers, more homelessness and more crime and poverty.

And don’t get me started on the traffic.

NZ Herald

Kiwi lessons for Aussie house dreams – Shamubeel Eaqub. 

Australia is thinking of ideas to use super to buy houses, and there are some lessons from New Zealand’s experience.

It’s a short-term and politically convenient salve, allowing some people to buy. But without fixing the longstanding, underlying problems of the housing market, it just adds more demand and makes houses even more unaffordable.

Allowing people to access their retirement savings to buy a house is a political no-brainer.

It helps first home buyers put together a deposit. Even better, emptying out the KiwiSaver account doesn’t affect government finances. They are both political wins.

But the long-term impact is sadly predictable: extra demand drives prices higher and many people will have less of a savings pot to retire on.

The scheme is popular in New Zealand. Around 25,000 people used their KiwiSaver savings to buy a house over the past year.

Realistically, many home buyers will need other savings and perhaps their partner’s KiwiSaver too.

For these buyers, they risk having a much smaller retirement nest egg, but they will have a house. The main risk for them is a housing crash, which would mean possibly losing equity in the house and not having long term retirement savings.

But most people would not sell their house in a housing crash. Rather, the tangible risks are from rising interest rates or lost income – which could make their mortgages unaffordable.

Interest rates are starting to increase from record lows. The Reserve Bank will probably not raise the official cash rate, which influences the floating mortgage rate, for at least another year.

But rising global interest rates, which influence fixed mortgage rates, look set to rise by around 2 per cent over the next three to five years.

It doesn’t sound like much, but with recent borrowers stretched to their budget limits, even small increases could cause financial strife.

There is little hint of a worsening labour market. Jobs are growing at a reasonable pace and wages are rising in industries where vacancies are hard to fill.

For now, using KiwiSaver to buy a house has been a happy scheme for those who have used it. But this has added to the demand to buy houses. Some of these people would not otherwise be able to buy a home. Additional demand, in an already hot market, increases prices. This makes it harder for the next crop of buyers to access the market.

KiwiSaver withdrawal to buy houses was equivalent to 25 per cent of house sales, up from less than 10 per cent five years ago. The scheme has boosted demand for house buying. In that way, the scheme has been very successful.

But at a wider level it has failed. Home ownership has continued to fall despite this policy, which is now at the lowest level since 1946 (my estimate using partial data). Helping some people into the market has not changed the fundamental underlying problem – that houses are unaffordable.

To improve home ownership, we need to make houses affordable.

Whether in Australia or New Zealand, the fixes are similar.

But it is a long list of difficult things to fix: poor rental conditions, slow land supply, broken local government infrastructure funding, not building enough social housing, tax incentives for property investment, cultural obsession with property investment, banking rules that encourage mortgage lending, and a construction sector that is not big enough and not efficient enough.

Stuff

How one council is beating Britain’s housing crisis | Money | The Guardian. 

A lesson for New Zealand. Build without market speculation through properly regulated public-private partnerships. 

On the outskirts of Sheffield, UK, hundreds of new homes are springing up, built by the council to space standards that have all but disappeared in the private sector. New residents – the majority are 25-35 year olds – say they are impressed by the designs and spaciousness, and enjoy their close proximity to the city.

But this is not a return to the era of 1950s and 1960s council building. What Sheffield Housing Company (SHC) is doing is partnering with contractors to build low-cost homes for first-time buyers and families alongside houses and flats to rent at affordable prices, and with tenants better protected.

Affordable rent is based on 80% of market value – for example, a three-bedroom semi-detached house with drive and large back garden is around £115 per week. There are no letting fees, and tenants’ rights are the same as for traditional council tenants. Allocation is based on housing needs.

Sheffield has managed to do what the private sector, on its own, failed to do: build low-cost housing in areas that until now have been regarded as derelict or run-down.

Julia Kollewe

The Guardian

Moving on from home ownership for ‘Generation Rent’ – Richard Ronald. 

by Richard Ronald, Associate Professor, Centre for Urban Studies, University of Amsterdam

The inequalities and inequities that housing markets generate have become a cross-national issue in the last decade or so. In NZ, Australia, the UK and the US, discussions of “Generation Rent” have taken centre stage.

In the generational debate, older, asset-wealthy owner-occupiers advantaged by previously more stable lending conditions and historic house price trends have been pitted against younger cohorts. The latter have been priced out of the home buyers’ market and pushed into rental housing in ostensible perpetuity.

Evidence of just what “Generation Rent” is and, more importantly, why it matters have, however, been somewhat fuzzier.

Economies and security are built on housing

One reason declining access to home ownership for younger people is of such concern is that housing is much more than housing. The wealth accumulated in our homes over our lifetimes has come to represent economic security and a means to live more comfortably in old age. It’s seen as a buffer in times of hardship – buying a home is an implicit part of the welfare system in many contexts.

Declining home ownership is contributing to inequality.

Governments have largely nurtured this. They often support or even fund the growth of home ownership and protect property value increases. It has become increasingly evident, however, that this approach to housing markets as a kind of welfare policy has fundamental limitations.

For one thing, the global financial crisis of almost a decade ago demonstrated how deeply rooted and transnational housing finance has become. A welfare system that relies on home ownership in a globalised era is thus critically vulnerable. 

Although property markets work at a local level, global capital has become increasingly intrusive. Investment purchases are financed from around the world. While our homes function as our family savings accounts, housing now also serves as safety deposit boxes for transnational middle classes and wealthy elites.

The global financial crisis also illustrated that the very conditions that may require home owners to draw on their property assets as an economic buffer are likely to undermine their value and make them difficult to access when needed.

Since the crisis, housing has again become an overwhelming focus of investment, sustained by quantitative easing, weaker financial markets, and low interest rates. This is driving renewed inflation in house prices, especially in global cities, with overflows downwards and outwards. 

Divide grows between owners and renters

Buying a home is now well beyond the capacity of many among the increasingly vulnerable cohorts of younger people. They have also faced reduced job security, subdued wage rises, and diminishing access to credit.

As a result, home ownership rates across English-speaking societies, but also elsewhere, have fallen significantly, driven by the collapse in home buying among millennials.

While it is easy to blame globalisation (especially foreign investors) and dwell on the historic advantages baby boomers enjoyed, much of the problem lies with our housing systems and especially with our approaches to fixing them. Critically, by relying on home ownership and making homes default savings accounts essential to our long-term welfare security (in the context of austerity or welfare state retrenchment), we have come to depend on them for much more than housing.

This is why Generation Rent represents so much of a challenge. It requires more than dealing with the supply and distribution of home ownership. It may require a complete rethinking of home ownership as a basis of our housing systems.

The term “Generation Rent” is not particularly useful as it implies direct conflict between cohorts. In fact, the opposite is true. In recent years different generations within families have increasingly mobilised around their collective property wealth in the face of diminishing economic security.

In the UK, around one in ten first-time home-buyers were getting help from parents in the mid-1990s. By 2005 this was up to 25%. And since the GFC the figure has soared to as high as 75%. 

The family assets invested in housing are undergoing profound shifts.

At the same time, has been a remarkable shift in family deployment of assets. Numbers of private landlords increased from just over half a million in the early 1990s to around 2.2 million by 2015 (equivalent to almost one in ten households). This represents a remarkable boom in new landlords, owning just one or two extra properties, since the beginning of the century.

Various studies suggest that house hoarding and “landlording” have become an extension of the home-ownership welfare strategy. Buying and then renting out an extra home represents an effective means of ensuring long-term security. It’s also something that can be drawn upon to help out, or even pass onto the kids.

Generations, then, are not necessarily at odds with each other. There is little evidence that younger people directly blame their elders for their housing situation. In fact, it is older people that are most likely to help them out.

Problem is deeper than Generation Rent

Underlying Generation Rent is essentially a wider problem derived from the maturation of home-ownership systems in a diverse numbers of contexts, from Ireland to Japan.

In the past, home-ownership rates and property prices boomed, supporting asset accumulation for particular cohorts. However, this created conditions for tighter access, which has undermined the tenure and reinvigorated low-level rent-seeking in the longer term.

The outcome is not so much a polarisation between generations, but between younger people based on the housing market position, or strategy, of their parents, or even grandparents. The children of secure home owners are likely to eventually be helped out or inherit. The children of renters, over-leveraged mortgage-holders or ageing households who rely on their unmortgaged property to meet their own needs are likely to remain locked out unless they have a considerable income.

In the context of continued flows of global capital and the normalisation of property investment as family welfare strategy, we cannot realistically expect that socioeconomic inequalities derived from housing or problems of access among younger people are going to be reversed. 

Governments have largely responded to declining home ownership by sponsoring access to credit or providing extra cash for potential home buyers. This has done little other than revive house price inflation and thus aggravate the affordability issue.

Rental housing careers are likely then to become more common and last for longer. We therefore need better means to reconcile tenants’ needs with both housing and welfare practices. This will involve policymakers and politicians imaging other ways of “doing” housing that consider different types of households and life courses, tenures and housing ladders.

Younger people themselves seem to be adapting to a post-homeownership landscape. While owner-occupation remains deeply normalised, household situations have become increasingly diverse. Sharing with friends or strangers has become much more common.

In cities, this shift has started to stimulate private-sector responses, including large-scale purpose-built developments expressly tailored to the needs of Generation Rent.

NZ Herald

Economist: Pay rises won’t be enough to cover interest rate rise – Tamsyn Parker. 

Auckland 2017

‘Falling Off The Property Ladder’

$1,000,000 House – $700,000 Mortgage

1% Rate Rise = $135 PER WEEK!

$900,000 Mortgage = $173 PER WEEK! 

All going to the Banks rather then into the economy. Insanity.

Pressure on employers to boost workers’ wages is not going to be enough to cover the rising cost of mortgage rates, warns an economist.

Daniel Snowden, who analyses retail and consumer economic data for the ASB bank, said mortgage rates were roughly back to where they were a year ago but in about 18 months time were likely to be higher.

“In 18 months time it will be particularly unpleasant for people rolling off two-year rates,” Snowden said. Banks began lifting longer-term fixed mortgage rates at the end of last year and that has been followed by a flurry of increases in January.

Kiwibank has increased some of its fixed-term mortgages rates twice already this year and ASB also announced plans to increase its rates last week. While smaller banks SBS bank and the Co-operative Bank have also raised rates.

The banks have blamed rising funding costs from borrowing money in the offshore market for the rate rises.

“With the majority of mortgages fixed for two years or less, rising interest rates are going to impact people much more quickly in the current cycle compared with when interest rate cuts happened back in 2008/09.”

It’s recommended people calculate what a higher rate would cost them ahead of time to see what they could afford.

NZ Herald