Getting rich off property a long-standing Kiwi tradition
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The housing crisis has a number of causes. Two key causes are New Zealand's history of property speculation and central bankers' reactions to the Global Financial Crisis (GFC).
When a bank lends someone money to buy a house, people assume that money is from other bank customers' deposits. In fact, provided the bank has a certain ratio of actual funds to the amount lent, the 'money' is created out of thin air as soon as the borrower agrees to repay the loan.
This has an inflationary effect on house prices. Its why one measure the Government has taken to try and slow house price inflation is to try and limit the amount an individual can borrow.
But house-buyers outbidding each other with borrowed, artificial money is not the main cause of house price inflation.
The GFC was the consequence of a Ponzi scheme built on a crazy debt bubble. But since then, after giving billions of artificially-created funds at taxpayer expense to those who caused the crash, the central banks of the world have been essentially printing money then providing it at very cheap interest rates. It is called Quantitative Easing. The central banks have been doing this in order to keep the pre-GFC economy afloat.
Returns from investment in actual productive enterprises is low, mainly because world productivity is low. So the cheap money has gone into financial markets and property. Both of these type of investments have grown significantly since 2008, so they attract even more investment.
If it wasn't enough that money to fuel housing inflation is created by the very act of obtaining a mortgage, the world is awash with cheap money looking for a safe haven. What better place to invest it than in a house in the fantasy land at the end of the earth you saw on Lord of the Rings?
Back in 2008, at least China was solvent. But now China too has gorged on debt. Its middle classes are also looking for safe investments. Our Free Trade agreement with China enables the injection of all this cheap, printed money into our property market.
Existing home owners feel rich by the resulting price inflation. Property speculators whisper in the ear of politicians to do nothing to stop the party. Politicians don't want to be left without a seat when the music stops playing. House price inflation makes the all important growth rate look good in the same way that a pyramid scheme's sales figures look good for a while.
But there is more to it than this.
Property speculation as a means getting rich quick is a long-standing New Zealand tradition.
The 1870s was when most European settlers arrived here. They arrived to find most available land bought up by the settlers who arrived in the 1850s. The immigrants of the 1870s had usually come to the other side of the world to escape landed wealth and rented hovels.
The demand for land in New Zelaland lead to the Land Wars and massive land confiscations in breach of the Treaty of Waitangi. It also lead to King Dick Seddon and his Liberal party breaking up the great estates in the 1890s. Itis worth bearing in mind that ultimately, the wealth of most land-owners in New Zelaland is stolen from Maori.
For a brief period, New Zealand was remote and land was cheap and available.
From the 1880s, we exported frozen lamb, a sought after luxury food of the time, directly to the centre of the world's biggest empire. From this and our wool and butter, we became wealthy.
Wakefield and others reacted to the Industrial Revolution destroying traditional British agricultural society by trying to create utopian, ordered, hierarchical versions of English and Scottish towns in New Zealand. But at the same time, Chartist socialism reacted to the negative effects of industralisation by demanding some sharing of the wealth and political power.
These Chartist socialist traditions came to NZ too.
So in the 20th Century, some of the wealth from our role as Britain's farm and as beneficiaries of a land-grab from the Tangata Whenua, was spread to the workers and the poor by strong unions and a caring welfare state.
The result of this was that within living memory, even young factory worker couples in New Zelaland could often buy a house. Buying a bach (or crib!) was within the sights of many. This strong cultural memory still drives us.
But New Zealand is no longer the sleepy, quarter acre, pavlova paradise that Austin Mitchell reported on 50 years ago. A revolution occurred. It started in 1984 and has not stopped. We now call it 'neoliberalism'.
Among other things, neoliberalism has involved deregulating finance so that there was an explosion of cheap credit. It also involved gutting unions in the name of productivity but with the promise of trickle-down.
A few got rich. All of us had access to the consumer goods denied us under Muldoon's fortress economy. We could borrow to pay houses and consumer goods more easily than ever before.
Neoliberalism meant that we had cheap imported goods, but we lost our high-paying protected jobs. There was no trickle-down - unless you count the cheap Japanese imported used cars.
For years, due to the purity of the neoliberal experiment in NZ, combined with the rights of Kiwis to live and work in Australia, thousands of us left annually to live in Australia.
Australia's mineral boom underpinning its wealth ended about the same time as China started on its debt binge. NZ-born Kiwis are returning home from Australia and not leaving in the first place. Those who left had to be replaced. Those new Kiwis occupied the homes vacated when many Kiwi-born New Zealanders departed for greener pastures.
More recently, the Government has been allowing record numbers of immigrants. Many have no hope of obtaining residency. But they have to live somewhere. They also often drive down the wages for jobs that NZ-born Kiwis would otherwise perform.
The Government has continued selling state houses because that is its long-standing ideology. It cannot conceive of any other response. The central planning involved in large-scale house building seems like something from a long forgotten semi-Stalinist past. How do you admit that your entire economic and worldview may be flawed? You don't. You deny there even is a problem or you blame someone else.
However, in fairness to the Government, the housing crisis is driven by a number of factors outside their control. These include a world economy and finance system based on debt and some historic and cultural factors unique to New Zealand.