The Real Reason for Housing Unaffordability
The news that the number of houses being sold is falling and that prices are rising more slowly has been greeted in some quarters with responses that are – sadly – all too predictable.
The consensus is that these shifts have been brought about by the Reserve Bank’s introduction of restraints on lending by the commercial banks. The real estate agents have been the first to complain at this threat to their rising profits, but have no doubt been supported by all those others – speculators, landlords, banks – who have prospered by virtue of the crisis of affordability that has afflicted so many of our fellow-citizens.
The Reserve Bank has been urged to relax the loan-to-value ratios that have restrained bank lending on mortgage and, as a result, have cooled the housing market – and even the government, in the person of the Prime Minister, has weighed in with advice that the Reserve Bank should back off a bit.
This is a bit rich coming from politicians who have not themselves had the courage to do anything at all to grapple with unaffordability, and who – now that the Reserve Bank has at last taken a few first steps – choose to snipe from the sidelines when those steps prove effective.
The critics have camouflaged their obvious self-interest in a housing market that continues to inflate – a self-interest, in the case of the property industry, in profits, and in the case of the government, in votes – by shedding crocodile tears for first-time buyers who find it difficult to raise the deposit that is now necessary.
There may well be a case for relaxing the constraints specifically for first-time buyers trying to buy a (comparatively) inexpensive house in which they intend to live; but the case would be even stronger if the critics showed some awareness that the problems for first-time buyers – and for many others – have been caused by the very failure to act on excessive bank lending that has made it inevitable that housing prices would soar.
A failure to act now – and, now that we can see how effective the Reserve Bank’s measures can be, to continue to act – can only mean that the housing market would become even more unbalanced and top-heavy, and future first-time buyers and others would be even more priced out of the housing market.
We can at least celebrate one significant step forward. The debate about what has really caused house prices to rise so fast can now be assessed in the light of these latest developments. The conventional view, shared by opposition as well as government politicians, is that the problem is one of market failure – the failure of supply to keep pace with demand.
But that is to ignore the fact that the housing market is not like other markets. What makes it different is that, for as long as bank lending on mortgage is unconstrained and the banks can find people to lend to, there is virtually unlimited purchasing power in the hands of purchasers.
It is that tidal wave of unlimited new money created by the banks washing into the housing market every day that makes it inevitable that house prices will rise and rise. The only way of slowing it down is to restrict the amount of bank lending, and that is what the Reserve Bank has now done.
It is to the credit of the Bank and its governor that they have acted on their understanding of what is really happening, and that they have been able, with the effectiveness of the measures they have introduced, to demonstrate the correctness of their analysis.
But why should we continue to allow our politicians to disclaim rather than accept the responsibility that is truly theirs? How refreshing and wonderful it would be if Labour’s new leader were to emulate the great Michael Joseph Savage who, in the late 1930s, used “quantitative easing” – not to bail out the banks – but to build thousands of new state houses. He thereby not only created a long-term and income-producing asset for his government, but provided low-rent, good quality housing for young families.
I know about this from first-hand experience. My parents married as the Second World War was about to break out. When I was born, they moved with their new baby from private rented accommodation into a new state house, which is where I grew up and enjoyed a happy and secure childhood – to which every child is surely entitled.
Bryan Gould
16 August 2017
The Real Reason for Housing Unaffordability
A Weak Man Trying to Look Strong
Donald Trump would not be the first political leader to try to build his popularity, or divert attention from his troubles at home, by seeking a diversion – usually by means of a military adventure of some sort – overseas. In recent times, we can think of multiple examples – President Putin and Crimea, the Ukraine and Syria, for instance, or George W. Bush and Tony Blair in Iraq.
In Trump’s case, the need for such a diversion seems to be becoming more and more pressing. If it is not rattling a nuclear sabre at North Korea one day, it is Venezuela – Venezuela! – being threatened with a military intervention the next.
Paradoxically, one might think, such behaviour is more likely in a democracy, where public opinion matters, than in a dictatorship. It becomes especially predictable and probable if the democratic leader in question is single-mindedly obsessed with his popularity with the voters – or lack of it.
Again, Donald Trump’s exemplification of the syndrome offers little cause for comfort and compounds the dangers. In Trump, we have a President (and supposed leader of the “free world”) who is unusually, not to say dangerously, narcissistic and living in a fantasy world, and who accordingly sees everything through the lens of his own self-interest and self-image, whether real or imagined.
As we get to see more and more of the American President, it becomes increasingly clear that every issue and every potential decision is assessed according to how he believes it will impact on his image with the voters. And more than that – it is not enough for him to be approved; he has to be the biggest and best, the strongest and bravest, “ever”.
He seems obsessed with the military power at his disposal – and, at a time when his poll ratings have dipped disastrously, it is not surprising, given his personality, that he should see his readiness to threaten and use military power as providing a route back to the popularity he believes he enjoyed when he was elected with “the biggest majority ever”.
Again, the paradox is that Trump’s fascination with the possible use of his nuclear arsenal, which he hopes will show him to be a strong leader, is a sign of weakness rather than strength. A leader obsessed with his poll ratings loses strength rather than gains it. Trump is now in a position where he dare not disappoint any group (and particularly any group who supported him at election time), however disreputable their views; he has, in effect, become their prisoner.
We have seen an example just this week, where Trump avoided any direct criticism of the part played specifically by the Ku Klux Klan and their far-right allies in the civil disorder that broke out in Charlottesville. Rather than condemn them, he preferred instead to lament –and even that was belated – the violence displayed “on many sides”. It was a demonstration of weakness and a refusal to face the facts that earned him a contemptuous implied rebuke from his wife, but it was driven by his fear of losing support from a group of right-wing extremists that see him as “their man”.
Many commentators have expressed their concern that a man of such “disordered mind, unstable personality and stunning ignorance” (according to Peter Wehrner, a veteran of three Republican administrations) should have his finger on the nuclear trigger. There will be many around the world who share that concern.
No one doubts that North Korea in particular poses a particularly difficult problem, not just to the United States but to the world as a whole, not least because Kim Jong-un and the North Korean military (who are the real power behind the throne) have institutionalised Trumpian attitudes in their own policies. The North Korean problem needs to be handled with firmness and the combined pressure that can be applied by calm heads around the globe. But the dangers North Korea represents can only be compounded many times over by the inflammatory language used by Donald Trump.
None of us can feel comfortable when the shots are being called by a leader who sees everything, including the risk of nuclear catastrophe, in terms of whether or not his own image and his prospects of re-election will be advanced or hindered.
And, as to Venezuela, one can only marvel that this small and disturbed country, struggling with its own internal issues, should have found itself apparently in the Trump firing line. If Venezuela, who next?
There is nothing more dangerous than a weak man trying to appear strong – particularly when that weak man is looking for opportunities to demonstrate how strong he is and has been unwisely entrusted with the ability to start a nuclear war.
Bryan Gould
13 August 2017
A Tale of Two Citizens
This is a tale of two citizens. The first, let us call him Citizen A, is a middle-aged pakeha male who has enjoyed a long career in politics and has, even from his younger days, clearly been destined for great things. That promise was almost fulfilled when he became leader of his party at a relatively young age, but his bid to become Prime Minister at that point ended with a record general election defeat, and he was as a result replaced as leader.
He recovered from that setback, however, and after patiently waiting for some years, regained the leadership of his party. His patience was finally rewarded when he became Prime Minister last year, an office he still holds.
His story is not one, however, that is unblemished. In 2009, it was revealed that he had improperly claimed a housing allowance of $900 per week in respect of a house in Wellington that was owned by his family trust, and in which his family had lived for some time, while at the same time claiming that his principal residence was in Southland. He repaid $32,000 that he should not have received. The revelation did not, however, dissuade his colleagues from electing him a few years later to the party leadership. The polls show that he continues to enjoy widespread support from the voters.
The second of the two protagonists of our story – let us call her Citizen B – is a younger Maori woman who has also enjoyed a successful political career. She was elected as co-leader of her party and has commanded widespread respect for the efforts she has made to draw attention to environmental and social issues that she thinks are important.
In a perhaps misguided attempt to highlight one such issue – the struggle for those dependent on benefits to provide (especially for families with young children) food on the table – she revealed that she had more than a decade ago (and as a solo mum) lied to the authorities so as to claim a larger benefit (larger by $50 per week) than she was entitled to.
This revelation created a storm of protest – from the media, from the public, from fellow politicians and even from her own party colleagues, some of whom declared that – as a matter of principle – they could not continue to represent their party while she remained as co-leader. She eventually felt obliged, as her revelation (and the storm that followed it) seemed to have provoked a sharp fall in her party’s poll ratings, to resign as co-leader of her party. Her transgression – and her decision to confess to it – may well have put an end to her political career.
The two protagonists have, in other words, both behaved in a way that is inappropriate for those seeking the trust and support of their fellow citizens. But one has been made to pay a heavy price; the other has emerged unscathed and continues to enjoy public esteem.
Citizen A, of course, committed his error while already in a position of responsibility, and earning a good salary; Citizen B, on the other hand, did so when she was yet to seek any public role. Citizen A apparently enjoyed the financial support of a family trust, while Citizen B was a penniless solo mum. Citizen A gained, by virtue of his failure to abide by the rules, a useful, substantial (and no doubt enjoyable) addition to his purchasing power; Citizen B gained a much smaller sum which she applied to buying food for her child.
Citizen B confessed her mistake and was willing, for the sake of those she was trying to help, to endure the opprobrium that she knew would come her way, while Citizen A’s error was disclosed only when official scrutiny revealed a breach of the rules.
Citizen A continues to enjoy the prestige, esteem, salary and support from colleagues to which a Prime Minister is entitled. Citizen B has, as the consequence of an unrelenting media campaign and her abandonment by her colleagues, been hounded out of her wish to continue serving the public because she is apparently unfit to seek their support.
Charles Dickens himself could not have invented a more inventive and bizarre story line. It is truly a tale of two citizens, and of how differently fate – and we –have treated them.
Bryan Gould
10 August 2017
Trump the Democratic Leader?
Politics, and democratic politics in particular, is a messy business. There are multiple bottom lines to aim at, endless competing claims as to how scarce resources should be reconciled, differing views as to whose interests should take priority, and there are never any final victories – every battle has to be fought over and over again.
It is a miracle that we bother with all those complexities. But we do so because we know that it is better and fairer than any other system – particularly when the only real alternative is to allow the powerful just to grab what they want.
But that does not stop critics from asserting that things would be better, if only we could hand the whole business of government over to those who know how to run things – and that sentiment often boils down to a simple wish for a “strong man”, usually a businessman, who will brook no nonsense and just get on with the job.
That was in effect the pitch that worked for Donald Trump. Put me in the White House, he seemed to say, and I will bring to the task of being President the experience and knowledge I have gained from heading a successful business empire. I will cut through all the red tape, face down the agents of government and the elected legislature (which I will describe first as a “swamp” and now a “cesspool” that must be drained), sack those officials whom I do not like or who displease me, override the attempts of an independent judiciary to enforce the limits to my power prescribed by the Constitution, bemoan and attack the role of a free press.
I alone will decide what is best for the country, just as if I were running my own business. I represent in my own persona, in other words, all that is necessary to provide an effective democracy.
But President Trump is not the first businessman to learn the hard way that the techniques that worked in business can creat an unholy mess when applied to running the country. In business, at least in the Trump view, there is a very obvious single bottom line to aim for. People, mainly employees, do as they are told if they want to keep their jobs. The absence of even a scintilla of self-doubt is everything – if people don’t like it, they can lump it. The only rules are that winners make the rules and that the market always prevails. Ethical behaviour has no value in itself but is worthwhile only if it is rewarded by the market. Success comes to those who can get away with as much as they can.
Politics, though, is altogether more complex and subtle. In politics, people do not leap to it when they are told what to do. They need to be persuaded, cajoled; positions must be changed, other views accommodated, compromises reached, alliances formed and broken. Lessons are learned and voices from all quarters are heard and listened to.
And that is just as well. Politics, democratic politics, is meant to be complex and confused. If governing the country was just a matter of following the prescriptions of one person, or of allowing an allegedly value-free market always to decide how the dice should fall, then what would be the point of electing those who represent us? Why would we bother to consult the people if each issue could be resolved by the decision of a single business leader or must follow the dictates of the market? Why hold elections or debate policy issues if a Donald Trump or the like, convinced he is right about everything, can simply settle every issue for us?
The whole point of democracy, in other words, is to ensure that important decisions about the society we live in reflect a wide range of interests and are not taken by a small handful of people, acting as though they were running their own businesses. The legitimacy conferred by the democratic mandate is intended to offset and restrain what would otherwise be the overwhelming power of those who dominate the market place.
If we allow that small number with real economic power to seize control of the political process as well, and bend it to serve their particular interests, we end up with a society that most people do not want. The last thing we need is the single-minded self-obsession of the profit-focused business leader – as the Americans are in the process of finding out.
Bryan Gould 26 July 2017