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By Will Ryan
No political party wants to address the root of housing unaffordability! Not Labour, National or any minor party will talk about the elephant in the room, instead wanting to blame minor factors from taxation to immigration to the RMA. Whilst promising to provide affordable housing they are all throwing fuel on the fire!
In the last year prices across the country have gone up about 20% on average. What caused this? The tax framework hasn’t changed, the Resource Management Act is the same, immigration has dropped under Covid…unemployment has increased meaning there’s less people to qualify for mortgages, so why are prices still going up?
Cheap money! The most import price in any economy isn’t the price of housing, food or labour, it’s the price of money/credit known as interest rates or the “Official Cash Rate” in New Zealand. This is set by the Central Bank, by a handful of people in a board room, not the market! Whether RBNZ is private or not is besides the issue that we set the price of money in a dictatorial socialist manner, not a free market demand/supply mechanism – as the value of our currencies and anything at your local supermarket is determined.
The central bank is “independent” of the government but still part of the state. They are given socio economic aims: 1) To stabilise our dollar and 2) To adjust interest rates to aim for maximum employment. So this raises the question, why can’t our government demand they make affordable housing a priority?
Home loans have dropped from roughly 4% to 2% in the last year. This is because the central bank lowered the price of money that your local commercial bank pays them down to 0.25%. This increases house prices in two compounding ways- it means you’re getting half as much interest rate in your savings account or paying half as much interest to borrow and buy a house. So people are incentivised to borrow rather than save.
The third major incentive to borrow and spend is caused by the central bank money printing/inflation. When $100billion NZ dollars have been created this year, the value of each dollar you earn has been diluted, savvy investors know a house can’t be created or diluted as easily, so a home is a good way to preserve the value of capital. The money printing also means your savings earning 2% interest are actually losing value. This is how central banks encourage people to spend, which increases the velocity of money and ultimately employment, but that comes at a cost- namely to those who can’t save in finite assets like housing or stocks which absorb inflation. This mechanism supercharges inequality- yet Labour/Greens once again blame capitalism rather than central bank inflation of housing/stocks!
So instead of blaming investors for buying houses and pushing the prices up, perhaps understand what their behaviour is being motivated by. It’s not an individual buying a home that is the root of the affordability issue, it’s the fact that our government and state central bank have made interest rates so low, that property replaces a savings account. If you could still earn 6-8% in a savings account, there would be no point buying a home to rent out for the same return with far more risk and hassle- humans respond to incentives and the banking elite have set the parameters, not some rich guy down the road.
Let’s blame the right people. None of those screaming about poverty or housing dare talk about the central banks or artificially low interest rates causing a housing bubble. But it’s the only logical explanation, it’s a globally observable trend also, unlike any other regulation or immigration factors specific to New Zealand. It’s a simple as if you lower the price of mortgaging a house, people will borrow and mortgage more! Our leaders won’t attack the central banks because that leads to the real power on this planet!
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