Tuesday, February 07, 2012

Housing yet again

Housing affordability has five components:

1 - cost of land.

2 - cost of building - and as NZ is well under scale, and hence has hopelessly overpriced materials: it's still worth going to the States and filling a 40' container and paying GST plus duty on the contents: most materials are around 20% of the NZ converted cost.

3 - time taken - as time=money - the 'carry' can be significant even for a single build.

4 - credit availability and terms.

5 - Household income levels

The stoopid Councils contribute directly to #1 and #3, the craft nature of building in NZ and the lack of scale accounts for #2, and Gummint policy affects #4 and #5.

In 2001, in Christchurch, it was possible to buy a doer-upper for well south of $50K, in the non-leafy suburbs. By 2003, the same house was x3. What changed?

In 2002 the Labour Gummint, trying to be nice to the hopeless, introduced a guaranteed $100K credit line. Qualification for this was simple: 'can you fog a mirror?'.

Instant result in Chch - every single price in shall we say the structurally challenged house class went up overnight by, spookily enough, that same amount.

So there's the Gummint's little push to unaffordability. #4 shows that easing credit adds to prices. Whodathunk?

And finally #5: the rise of credentialism, soft degrees like media, art and music, and the constant repetition of the mantra 'education gets you up in the world', have all lead to a situation of inflated expectations, but same old employment choices. And now the GFC has commenced a winnowing of the crop: only the truly useful souls can look forward to even a moderate income: the hopeless are condemned to menial jobs or the dole, and as has been the case throughout human history, the well-off are quite capable of looking after themselves. Average incomes are static in nominal terms, and falling in real. As Glenn Reynolds notes:

"The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle class people. But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay in, the middle class. Subsidizing the markers doesn’t produce the traits; if anything, it undermines them. One might as well try to promote basketball skills by distributing expensive sneakers."

Oh, and there is no political way out of this, because there are more Tax Consumers than Tax Producers, and the Consumers can, have and will outvote the Producers when push comes to shove. The middle class vote has been purchased by WFF, and despite their occasional unease, they'll stay bought.

So there in a nutshell is the bind we're in. And as any solution involves a choice between the hard way out, and the really hard way out, I don't see much will move until it has to. As the saying goes: what cannot go on forever, won't.

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