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Sunday
Jul102016

Bernard Hickey is 'Spot-On'

I make no apology for re-printing extracts from what I believe to be 'transformational' analysis's by well qualified commentators.

The moment that ex-Reserve Bank Governor Arthur Grimes made his views on the Auckland housing situation known a week or so ago, it was almost inevitable that Key and his cohort from around the Cabinet table would go into defence mode and endeavour to 'rubbish' his views as being 'out oif touch.' 

Unfortunately, as Bernard Hickey points out in today's Weekend Herald, Grimes "exposed them as emperors without clothes."  And those in opposition proved to be 'paper tigers' in exactly the same way. It is indeed the case that too many in vital electorates have grown used to seeing their nest-eggs grow exponentially, often through investment in second and third homes - and often locked up for simple capital gain.

Would you know it, our pollies of all stripes are desperately concerned not to lose the support of these people by advocating any policy that may lead to the overnight depression of house-values as suggested by Grimes - never mind the expanding 'bubble.' Key lives in the 'cloud cuckoo land' of value preservation while others run a mile rather than even comment on the Grimes suggestion. 

Bernard Hickey's article proves once and for all that the present Government is primarily concerned with preventing developers 'going to the wall,' and banks coming under pressure for having over-lent, even though the Reserve Bank 'stress-test' late last year found that banks could cope with a 55% fall in Auckland house prices. The proof for this claim lies in Key's own words last week.

It will take a Government with more courage than the one we have to initiate the measures necessary to restore balance in this situation. Right now it gives every appearance of a 'possum in the headlights.' And the opposition is having field-day after field-day on the strength of equally weak policies. 

Here is the Bernard Hickey extract:

Former Reserve Bank Chairman Arthur Grimes essentially undressed our politicians in front of us this week when he challenged them to embrace a 40 per cent fall in Auckland house prices.

He exposed them as emperors without clothes.

"What I do is whenever I find a politician who says they want affordable housing, I ask them a very simple question: 'How much do you want house prices to fall by overall?'

"And not one of them has been able to answer that very simple question," Grimes said this week.

He was talking about the extraordinary response to his suggestion 150,000 houses be built in six years to push Auckland prices down.

Prime Minister John Key's response was immediate - and betrayed where he stands on the issue of using a supply shock to make housing affordable.

It was "crazy", would leave people in the market with huge losses and put pressure on developers.

So there we have it. The leader of the Government is more worried about the short-term fates of leveraged-up speculators and developers than the long-term fate of Generation Rent.

Despite years of saying the only way to improve housing affordability is to increase supply, his position is any increase in supply that hurts the investors who have bought in the past couple of years is out of the question.

Grimes is dead right. Improving affordability will require outright price falls and big ones.

Unfortunately, Labour leader Andrew Little and Greens co-leader James Shaw didn't do much better in the Grimes test this week. Little also refused to countenance the idea of falling prices, even as he flagged a plan to be announced this weekend to address the crisis.

Shaw refused to answer, not wanting to repeat the mistake of co-leader Metiria Turei, who was more honest a few years ago.

Why are politicians so afraid of voters on this issue? They may think the housing market is a "too big to fail" bomb that cannot be defused or dismantled without turning it into a weapon of mass wealth destruction, but that's simply not true.

An overnight 40 per cent fall in Auckland house prices would see a return to early 2012 levels. Most Aucklanders have built up big equity buffers and are living in their own homes, rather than speculating.

Tighter lending rules since 2013 cut out almost all those speculators borrowing with 90 per cent-plus mortgages.

The Reserve Bank conducted a stress test late last year that found banks could cope with a 55 per cent fall in Auckland house prices.

Our banks are not like the brittle, trigger-happy ones that threw Americans out on their ears during the Global Financial Crisis.

Yes, a few property developers might go bust, and yes, a few rental investors who banked on tax-free gains might miss out, but a fall in prices would be accompanied by lower mortgage rates.

Politicians failed Grimes' test and exposed themselves as fighting for leveraged-up property speculators rather than future home owners.

A brave and aspirational politician would take a different view.

 



 

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