The imprisonment of hundreds of New Zealanders in notoriously unpleasant and dangerous detention centres by the Australian authorities, and their eventual deportation back to New Zealand, is hardly what we should expect of our Anzac brothers in arms.  Yes, these are convicted criminals who have served jail sentences; but they have done their time and would, if they were Australians, be free to re-enter society and earn a living like any other citizen.

A clear case of discrimination in other words.  People who, in many cases, have lived and worked most of their lives in Australia have been ill-treated (and the recent instances in the Northern Territory show just how “ill” that treatment in Australian detention centres can be) and thrown out of the country with their families, not because they have criminal records but simply because they are not Australians but New Zealanders.

Legal specialists and a handful of commentators in both countries have raised objections but, so far, the issue has attracted little attention from the wider public, perhaps because sympathy is in short supply for convicted criminals.  But a New Zealand government that is truly concerned to ensure the proper and non-discriminatory treatment of all its citizens would surely have raised serious objections with their Australian counterparts to this obvious breach of human rights.

Yet our Prime Minister seems to have let the issue pass him by.  He claims to have raised the issue with Malcolm Turnbull but, if so, it has had no discernible effect.  His ineffectualness has reinforced a pattern that has become all too familiar.

In complete contrast to the usual Kiwi attitude of being ready to right a wrong no matter how powerful the wrongdoer, our government is very careful about the issues and opponents it is prepared to take on.  It’s impossible to imagine John Key ever initiating a nuclear-free policy against American opposition.  He would rather duck a confrontation, if public opinion allows it to do so, than take the action needed to set things right.

It is keeping in with public opinion, rather than its responsibilities to serve the national interest, that dictates how the government behaves.  They have made an art form, through focus groups and qualitative polling, of tracking how that opinion develops on issues that might cause concern.  Only when the level of that concern rises to threaten the government with public disapproval does it see the need to respond.

In those circumstances, the government has developed a range of responses, carefully calibrated according to how much notice it needs to take and what level of reaction will see the problem resolved.  We see constant instances of this syndrome.

The problem of New Zealand detainees in Australia has apparently not so far breached the threshold that requires a government response.  As the level of concern rises, however, the government will first deny that there is any basis for disquiet.  The concern about foreign trusts and tax evasion, for example, was met initially by a simple assertion from John Key that our rules were exemplary and that concern was misplaced.  He was confident that his assertion alone would be enough to resolve the issue.  It was only as the facts emerged, and the polling presumably showed a rising level of disapproval, that concessions started to be made.

Similarly, the response to the reported threat of Chinese retaliation if a complaint were to be made about the dumping of Chinese steel in our market was initially to deny categorically that any such threat had been made.  It was only little by little that the truth emerged and, typically enough, a junior minister was left to carry the can.

Examples of this syndrome can be multiplied many times over.  We see another unfolding before our eyes with reports that the European Union is to investigate New Zealand’s alleged readiness to accommodate tax evasion.  Time and again, the government’s preferred strategy is first to deny all knowledge of a reported threat, and then to take a carefully gradated series of steps until it believes it has done enough to allay public concern.

Underlying this pattern is the government’s constant concern not to alienate its own supporters or its powerful partners while at the same time appearing to be responsive to public opinion.  So, in matters of safety at work for example, the interests of farmers or the forestry industry are protected, even if the price to be paid is the lives of workers.  If the issue is equal pay for equal work, or decent remuneration for home carers, or paid parental leave, the trick is to appear to be sympathetic but not to prejudice employers’ interests.  It is not a coincidence that it is the interests of the powerful, and usually the economically powerful, that are given priority; it is much easier to do the little that is necessary to placate the powerless.

A government worthy of the name would not allow its agenda to be decided according to the relative muscle and importance of the interests involved.  Nor would it act to meet the wider national interest only when political considerations indicated that it would be advantageous.  We are all entitled to an equal share of the government’s care and consideration.

Bryan Gould

2 August

The crisis of rocketing house prices has now reached such proportions and threatens such a calamity that it has forced an unlikely consensus to emerge.  After months, if not years, of treating the problem as one of a long-term deficiency in supply, those responsible for resolving it are now accepting, one after another, that the crisis has been caused, and is still being exacerbated, as I have argued for years, by an excess of demand.

The finger is now being pointed at a range of factors – the high rate of immigration, the speculative activities of overseas buyers, the preponderance of investors as opposed to homeowners in the market.  These are, of course, all explanations of where the demand originates, but there is greater reluctance to acknowledge just how that demand is manifested.  It is one thing to have the demand for housing property – quite another to have the wherewithal to do so.

Even on that issue, though, we see a recently emerging consensus as to where the problem lies.  The wherewithal, as the Reserve Bank, the Prime Minister, and a growing number of commentators now seem to agree, is supplied by the banks.  It is their willingness – indeed eagerness – to lend unlimited sums for the purpose of house purchase that has fuelled the rise and rise in house prices.  Hence, the measures announced by the Reserve Bank to restrain bank lending and the Prime Minister’s urging of them to do so.

Perhaps the most unlikely recruit to this consensus is David Hisco, the Chief Executive of our largest bank, the ANZ.  He points to the 47% of the Auckland housing market now accounted for by speculative investors and – by implication at least – to the volume of new money created as loans advanced by the banks to such borrowers.  This diversion of funds from what could be productive investment to non-productive purposes is one of the causes of the problems experienced by our productive sector, and those problems are exacerbated, he says, by a further consequence of current monetary policy – our over-valued dollar.

He identifies the crucial issue as interest rates.  The fact that our rates are higher than those elsewhere is the major factor in propping up our dollar at a damaging level – damaging that is to the market share and profit margins available to those trying to sell our products into international markets, including our own.  The comparatively high return available to overseas participants in the “carry trade”, by virtue of our high interest rates, leads to increased demand for New Zealand securities which pushes up the value of the dollar.

The Reserve Bank has been reluctant to bring interest rates down to international levels for fear that lower mortgage rates will further inflame the housing market.  The only escape from this dilemma is to reduce interest rates (and, hopefully, the exchange rate) in the interests of the economy as a whole, but to restrain mortgage lending through other measures – hence, the recourse to “macro-prudential measures”.

Mr Hisco seems to prefer, as a means of cooling the housing market, direct restraints on lending, such as loan-to-value and possibly debt-to-income ratios, rather than the current high interest rates, and in this he is almost certainly right – though, while that is probably better for the economy as a whole, it is not immediately clear why it should suit his particular interests.

If he hopes that lower interest rates might stimulate investment and therefore economic activity, he is likely to be disappointed.  Overseas experience has shown that, in today’s conditions, low interest rates do not do much, if anything, to prompt faster growth – or higher inflation.  If the promised return on investment is low or nil, there is little incentive to borrow, however low the interest rate may be.  As Keynes said, cutting interest rates then is like “pushing on a piece of string”.

What all this means is that our monetary policy is producing outcomes, as Mr Hisco seems to agree, that are exactly the opposite we want.  We have high interest rates, an overvalued currency, a perennial trade deficit, a raging asset inflation in the housing market, and an economy that depends for growth on that asset inflation and on borrowing, rather than on rising real production.

The problem is not just, in other words, one of housing unaffordability, serious though that is.  That issue is in one sense just a symptom of a much wider set of weaknesses that beset the whole economy.  At the heart of those weaknesses is a monetary policy that is almost entirely dictated, not by our elected government or even by our own Reserve Bank, but by four Australian-owned privately owned and profit-driven companies.  It is the power we have granted to those companies – the four big banks – to create money out of nothing and to do so in order to maximise their profits by lending as much as they can on mortgage that distorts our whole economic performance.

Mr Hisco is no doubt genuinely concerned on behalf of his bank about the growing possibility that the whole shaky structure of debt and asset inflation will come crashing down.  But it may also be that his real purpose was to get ahead of the game and to head off what is now really required – a complete re-appraisal of the role played by the banks and of the monetary policy that their drive for profits imposes on us.

Bryan Gould

22 July 2016

Andrew Little and the Labour party will no doubt receive deserved plaudits from the general public, and perhaps even grateful thanks from the homeless and from first-time buyers, for the housing policy initiatives they announced last week.  They are at least on the front foot, whereas the government seems paralysed by indecision and by a reluctance to upset their friends in property development and speculation.

The significance of Labour’s proposals, however, significant as they are, goes well beyond the housing issue.  They offer the prospect of a new – or perhaps resurrected – approach to the political debate in this country.

Like much of the rest of the developed world, New Zealand has spent the last 30 years or more operating within a neo-liberal agenda.  The central feature of that agenda is the assertion that major decisions are for the market to make, not the government.

The corollary of that assertion is that there is no role for government in the growing areas of policy where the market is now accepted as dominant.  The market, it is said, is infallible; to second-guess it would necessarily mean that outcomes would not be as good.  The best thing a government can do is to get out of the way, and let the market do its job.

Never mind if there are losers as well as winners.  The dice should be allowed to lie where they fall.  It would be wrong to deprive the winners of their gains, or to frustrate them in their exploitation of market forces, just as it is not the responsibility of the market to look after those who can’t foot it and must pay the price for their failure.

And so it has been in the housing market.  The unregulated and un-supplemented “free” market has certainly delivered major prizes to the winners.  But it is increasingly clear that the market ignores the interests of a growing sector – those who can never hope to buy a house at today’s ever-inflating prices or even meet the rapidly rising rents produced by inflated capital values. These people are simply left behind to fend for themselves.

The Labour party’s proposals are a major rejection of the doctrine of market infallibility.  It accepts that it is society’s responsibility, through the government we elect, to remedy the market’s failures and excesses, so that our fellow-citizens are not left without somewhere to live.

This is not a novel idea.  The notion that we needed as a country to ensure that all our families and children were decently housed was for decades a hugely significant aspect of life in New Zealand, something that was thought to be an essential manifestation of our national character.  It is only in the last four decades that we have lost sight of this important New Zealand value.

It is not surprising, therefore, that the Labour housing initiatives have struck a chord.  It may be that Labour will be encouraged by the public response to show a greater willingness in other areas as well to intervene where the market fails to deliver acceptable outcomes.

Even in the field of housing, there is room for more courage, positivity and new thinking.  Labour’s initiatives are still limited and hedged in by market concepts.  They do not propose the building of publicly-owned state houses available at low rents to young families (which are really what are needed), but the subsidised development of “affordable” (at half a million dollars minimum) houses for sale to selected first-time buyers.

And Labour’s house-building programme, commendable though it is, will do little by itself (and will in any case take a long time) to make any impact on fly-away prices.  It would be nice if Andrew Little were right when he says that a properly functioning housing market would mean house prices grew no faster than the CPI, at 2-3%.  But the housing market, by virtue of the way it is financed, will always rise much faster than any other.

There is no other market – for boats, cars or tin tacks – where the banks will lend up to nine times one’s annual income, with the result that that there is a guarantee of continually rising prices and of a substantial capital gain for those who can deploy, with the help of the banks, such inflated purchasing power.  That will not change, and the problem will remain unresolved, for as long as the structure of housing finance remains unchanged.

Labour’s new (or at least resuscitated) thinking about housing, in other words, needs to go much further.  If we are to solve the problem of a malfunctioning housing market, in terms of both homelessness and unaffordability, we need to correct the reasons for that malfunction.  The government is manifestly not willing to do so.

Labour’s readiness to re-open the political debate on its own terms, as it has on homes for first-time buyers, should be just the start.  We need more of the same courage, on housing and on other matters of great social significance, like health, education and the environment.  Such courage, on the part of a party willing to accept the responsibilities of government rather than always deferring to the market, could pay rich political dividends.

Bryan Gould

12 July 2016

A government that has sat on its hands for far too long has at last woken up to the fact that the housing crisis is not only upon us but is rapidly getting worse.  Yet – even with house prices averaging nearly $1 million in Auckland and rising there at 14% a year and even faster elsewhere – the Prime Minister still cannot seem to think straight.   As the Herald has pointed out, his responses – now coming at virtually one a day – contribute little to a coherent analysis of what is needed.

The first point that must be grasped is that “the housing crisis” encompasses two linked but actually quite separate issues.  There is, first, the plight of the homeless – those who, by any standards, have nowhere adequate to live.  For them, an average price of $1 million for a home represents a fantasy world; it matters little to them whether that average is rising at 4% or 400%.  They simply do not have the resources to buy a house at any price or even, at the current level of rents, to rent.

The market has simply failed them.  There is no way that market-based provision can meet their needs.  If they are to be decently housed, some mechanism other than the market is needed – and that means publicly provided housing at affordable rents.  The idea is not exactly new in our country; it is just that it has dropped out of favour and been lost sight of in today’s meaner, harder-nosed, free-market economy.

A government that is serious about homelessness would swallow its ideological objections and would provide the finance for a house-building programme directed specifically at housing those who have nowhere else to go.  The Prime Minister’s concerns, sadly, do not yet extend that far.

The second major housing crisis is the one of affordability.  This arises, not because the market overlooks the needs of some, but because it serves the needs of others to an excessive and irresponsible degree and, as a consequence, threatens the stability of the whole economy.

It is this crisis that commands the Prime Minister’s attention, and is forcing him to do some new thinking.  So far, he and his Housing Minister have insisted that the market’s malfunctioning arises because the supply of new houses is artificially constrained by local government bureaucracy and their refusal to release yet more land.  Increase the supply, the argument goes, by inducing or forcing local authorities to release land, and prices would fall or at least rise more slowly and the problem would go away.

The $1 billion loan to selected local authorities announced last week was designed to encourage them to do just that.  Another round of property development, further profits for speculators, and lending without limits by the banks would, it was somehow thought, correct the market imbalance and bring some sanity to the house price bubble.

But the Prime Minister’s latest initiative, just a few days later, suggests that even he is beginning to doubt whether that can quite be right.  He has now – apparently prepared to step across the line that supposedly protects the independence of the Reserve Bank – urged the Governor to restrain the ability of investors to borrow from the banks vast sums for the purposes of speculative investment in housing.

So, it seems, the Prime Minister has come to realise that – as I have been arguing for years, and as the Herald has identified in a recent editorial – the problem is not primarily one of supply but of demand.  And the level of “demand” that is at issue is not just the numbers of those wanting to buy a house, but the purchasing power at the disposal, not just of would-be owner-occupiers wanting a home for themselves, but of those looking to make fortunes from speculative investment.

And what determines the level of that purchasing power and therefore of demand?  It is the willingness of the banks to go on lending, however high the prices go.  As long as they lend in ever-increasing volumes, as they are doing, prices will go on rising.  And, as long as prices go on rising, the banks will go on lending – a virtuous circle in terms of their profits but not so beneficial for the rest of us.

The fact that the Prime Minister has urged the Reserve Bank to act to restrain bank lending shows that he has belatedly (and no doubt reluctantly) been forced to recognise that his earlier insistence that it was an exclusively supply-side problem was wrong.  The question now is – how committed is he to the necessary action?

He has, presumably, gone as far as he dare in telling the Governor of the Reserve Bank what to do.  The independence of the Reserve Bank is, after all, said to be sacrosanct.  But if the Reserve Bank, which is of course a bank itself, and understands the issue only too well, will not act to restrain bank lending, should we not be demanding that our government should meet its own responsibilities – those responsibilities it was elected to discharge – rather than shuffling them off to the Reserve Bank?  And don’t those responsibilities include ensuring that adequate affordable housing is available to all of our fellow-citizens?

Bryan Gould

6 July 2016