As a kid I loved to watch my parents blowing up balloons for parties. I always wondered each time I saw one getting blown up how big the balloon would get before it popped. Now as housing prices in some parts of New Zealand reach inane levels, more and more people get squeezed out of the market and the Opposition hammering the Government to act – it has, but not in the way that is needed – I wonder how much bigger the housing price balloon will get before it pops.
According to economist Shamubeel Eaqub, housing prices now are in “ponzi territory”. Inflated well beyond what the market can cope with in the long term, Mr Eaqub believes that if Auckland housing prices correct, there will be a rough landing. Mr Eaqub notes that people power is on the rise and that in New Zealand housing will become – I believe it already is – the most painful point of social contention.
Whilst Mr Eaqub does not specify how people power will impact on housing prices, nationalist rhetoric about Governments needing to put their citizens and nation first and foremost may intone that non-citizens will be made less able to participate in a nations housing market. He also does not allude to whether or not this is a good or bad thing, though he will have noted that New Zealand First leader Winston Peters has long been calling for sustainable immigration. Large numbers of people are investing in New Zealand housing, without being citizens or permanent residents.
Mr Eaqub does rightfully note that the hot spot is Auckland where residents are finding it too expensive to live. Rents eat up most of a weeks wages and unless significantly well off, buying a property is all but impossible. The land in a driveway between two commercial properties, which amounted to only about 188m² was alone worth $1.15 million. In another case a dingy old villa that was in need of seriously heavy maintenance with no care for the garden was worth $3.2 million.
Yet, there are members of A.C.T. and National who believe that that is just “the market at work”. They claim to find bizarre, and illogical the idea that the market is overheated and that those who are making the claims are Labour and Green members. They might be right on the second count, but when well known economists like Mr Eaqub are sounding alarm bells, perhaps those Labour and Green party members are not so far off the mark after all.
And as for the answer to the problem? Perhaps the correction, rather than an uncontrolled bumpy landing, would be best served by requiring prospective buyers to hold New Zealand permanent residency or citizenship before buying. Since there won’t be an end to people applying for permanent residency or citizenship, it won’t be like the tap controlling the flow of investment gets turned off as the Government and its allies are claiming. The difference will be that more of the investment will be from New Zealanders.
As it should have always been in the first place.