NZ HOUSE BUILDERS SUPPORT MORTGAGE SLAVERY – WHY ?
Christchurch, New Zealand
22 September 2013
What part of 3.0 don’t the House Builders understand ?
For the past nine years, the Annual Demographia International Housing Affordability Survey has clearly illustrated that in properly governed urban markets, housing does not exceed 3.0 times annual household incomes.
Mortgage loads should therefore be around 2.5 times annual household incomes.
When housing markets become unaffordable, it is because Local Governments have lost control of their costs and the ability to meet their infrastructure responsibilities and cope with normal growth.
Unaffordable housing is about dysfunctional local governance
The Demographia Surveys are in essence an annual assessment of the functionality / dysfunctionality of governance at the local level.
If housing markets exceed 3.0 times annual household incomes, it indicates local institutional failure that needs to be dealt with.
Sadly … the significance of affordable housing markets and the figure “3.0” have not got through to the New Zealand Master Builders Federation and its Chief Executive Warwick Quinn.
New Zealanders are demanding affordable new housing
The Master Builders are clearly unaware New Zealanders (75% of young and 62% of all) are demanding the Authorities allow affordable housing to be built. Both major political parties are responding to public opinion with a commitment (in their own way) to supplying affordable housing.
… and Government is responding with a focus on the structural issues …
The current Government is acutely aware it will be in the Opposition benches late 2014, if it fails to ( belatedly … it should have following the 2008 election … as promised ) ensure affordable housing is put in place over coming months.
… with a helpful “hurry up” from the Reserve Bank …
Within Christchurch’s The Press report by Alan Wood Builders seek flexibility on low deposits , the New Zealand Master Builders Federation express concern about the forthcoming Reserve Bank Loan to Value Ratio (LVR) restrictions (and here and here ), to take effect 1 October 2013.
New Zealand Reserve Bank Governor Graeme Wheeler made the announcement 20 August following extensive prior communication with the wider community.
The RBNZs primary concern is the risks of persistent housing inflation to the financial system.
Reserve Bank Governor Wheeler is extremely aware of the destructiveness of housing bubbles …
Reserve Bank Governor Wheeler has been extremely clear about the destructiveness of housing bubbles to the financial system. He has a responsibility to ensure New Zealand does not repeat the mistakes of others.
Reserve Bank Governor Wheeler has made it clear the LVR restrictions are a temporary measure, that will be reviewed, once Government deals effectively with the structural impediments to new housing supply.
Learn from Texas
Recently, New Zealand’s lead think tank New Zealand Initiative explained that Texas is where to learn how to get affordable new housing in place … reinforcing the repetitive findings of the Annual Demographia International Housing Affordability Surveys (9 to date).
The Real Estate Center of Texas A&M University recently described the differences between bubble and bust California and build Texas . Remarkably, on a population basis, there are a million less residential units in California than there are in Texas .
Internationally, economists are becoming increasingly aware that the “root cause” of the 2008 Global Financial Crisis, was because of dysfunctional / unaffordable housing markets.
Demographia’s Wendell Cox explained recently at New Geography The Consequences of Urban Containment, on the recent research findings of leading economists Brian N Jansen and Edwin S Mills ( Edwin Mills (economist) – Wikipedia ).
Structural urban economics has not been as well understood within the economics community, as explained within Housing Bubbles And Market Sense . It needs to be.
Because of this failure, the wider public and policymakers have not been adequately informed of the risks and sheer destructiveness of unnecessary scarcity induced housing bubbles.
The evidence is clear. New starter housing should cost about $1,000 per square metre all up (serviced section and construction costs) on the fringes of the New Zealand metros.
Government focus on essential structural issues
Back late October last year, Deputy Prime Minister Bill English announced (following the Productivity Commission Housing Affordability Report earlier in the year), that the Government focus is on …
(a) land supply
(b) infrastructure financing
(c) process … and …
(d) construction costs
Mr English again explained the Government’s commitment to dealing with housing affordability, with his contribution of the Introduction of this years Demographia International Housing Affordability Survey . Further information is available at Performance Urban Planning .
As part of this focused programme, the Government at the time of the Budge mid-May this year, introduced the Housing Accords and Special Housing Areas Bill . The Opposition Labour Party supported this Bill through its first reading. Under urgency, the Bill with the guidance of Housing Minister Dr Nick Smith, went through the Select Committee Process and was enacted 5 September (and here ).
Master Builders incompetent advocacy denying members business
Remarkably, the New Zealand Registered Master Builders Federation has had no part to play these past 8 years, in dealing with the structural impediments to affordable housing supply, since the release of the 1st Annual Demographia Survey early 2005 .
Interestingly too, this supposedly representative body for builders, appears to have failed to point out to its members, how artificially inflated land values and inappropriate infrastructure financing, have “wiped out” all the lower bands of the new housing market.
The flurry of media releases by the Master Builders, suggests it is concerned about New Zealand’s very low new build volumes, but sadly, appears to lack the ability to comprehend why.
A quick check of new housing construction prices in Houston and Houston Association of Realtors ( latest monthy report ), illustrates the extent to which this industry body has failed to inform its members of the business being unnecessarily denied them.
The Master Builders Federation is pressing for a meeting with Reserve Bank officials.
It is hoped the Reserve Bank officials explain in the simplest terms possible to the Master Builders, the significance of the number “3.0”.
And how the Master Builders could assist their fellow New Zealanders enormously, by working constructively with the Government in dealing with supply impediments, so that new starter housing can be supplied on the fringes of our metros for about $1,000 per square metre all up.
Grounded research urgently needed
For example, the Government with urgency desperately needs “ grounded research “ (we have had more than enough of the cut ‘n paste superficial bureaucratic / academic research these past 8 years) …
first … detailed cost break-outs of new starter housing on the fringes of Houston, in comparison with current inflated pricing on the fringes of the New Zealand metros …
and second … setting out clearly the artificial zonal scarcity values on the fringes of the New Zealand metros that need to be eliminated.
In its suggested forthcoming meeting with the Reserve Bank, the New Zealand Master Builders could make a useful contribution to this issue, by explaining to Reserve Bank officials, how the former is sending a delegation to Texas to learn and relearn how to build affordable new housing . .
The sooner New Zealand residential builders learn (or more correctly “re-learn” … as New Zealand used to be affordable), the sooner the Reserve Bank will be in a position to remove the (hopefully) temporary LVR restrictions.
High Multiple Lending is poverty creation
It seems likely that with this suggested meeting of the Master Builders and Reserve Bank, that the latter will explain to the former in simple terms, the unnecessary costs to struggling Kiwi families, of unnecessary high multiple lending.
Of necessity, Lending Multiples must mirror the Median Multiples of specific urban markets (again … refer to the Annual Demographia Survey for guidance).
Adjusted Demographia Survey figures (this year’s Survey data 3rd Qtr 2012) indicate that Auckland and Christchurch (with much lower annual household incomes) Median Multiples are a stratospheric severely unaffordable 7.0 … well above the “severely unaffordable” threshold of 5.1 Median Multiple.
No doubt the Reserve Bank officials will explain this to the builders.
Welcome to 20 years of unnecessary mortgage slavery
To illustrate … Christchurch and Auckland households on say $100,000 annual household income are currently required to pay $700,000 to house themselves, while in normal and affordable housing markets that are competently governed, they are paying $300,000 or less.
In other words, struggling households are currently being required to pay an extra $400,000, for what should be considered serious institutional failure at the local level.
It could be termed a “local institutional failure tax”.
Let’s assume too, households are currently purchasing these grossly inflated homes with $50,000 deposits. The “institutional failure mortgage” required is therefore $650,000.
If Christchurch and Auckland were normal housing markets, with housing at 3.0 times annual household income or less, the mortgage load would be $250,000 … not the current $650,000.
In other words $400,000 less.
With interest added over the life of the inflated mortgage, the cost over time for these households is likely about $800,000.
Let’s assume the wife / partners income is $40,000 per annum.
Currently the wife / partner is being forced unnecessarily to be a “mortgage slave” for about 20 years of his / her working life… denying the children a reasonable standard of living too.
It seems good numbers of women / mothers are currently “mortgage slaves” … unnecessarily.
Reserve Bank officials will no doubt explain these issues to the Master Builders and “encourage” them to travel to Texas to learn and re-learn how to build affordable housing.