Property boom

Headlines, Taking issue — By on October 30, 2015 11:13 am

Helen Borne asked three University academics from different disciplines about their views on how the Auckland property boom will impact on the next generation.

Political control

How about we examine the controversial premise that the property boom is not a big issue except from a political standpoint? Cities have always grown in spurts with housing booms and spectacular busts, especially where heavy political control is exercised over the development process. If one retorts that “housing is not affordable!” that leaves us with a perplexing economic issue. If housing is not affordable, then no one could buy it and prices would not be going up, would they?

The underlying assumption behind the call for the government (politicians) to act in housing markets is that they (or some group, likely led by politicians) can do a better job than individuals and businesses looking after the next generation. That premise makes little sense either. That is because politicians have a vested interest in prices going up. When did you last see a politician call for house prices to go down, particularly one that was in government? You may hear them talk about “stabilising” prices, but that is code for “we want this feel-good gravy train to keep going so we can get re-elected”. Prices going down usually means that the rest of the economy is tanking as well and that people do not feel that good about a large proportion of their net worth, which is mostly tied up in owneroccupied housing. Then there is the housing reality. When was the last time you heard about prices remaining stable for a long period of time?

American economist and policy analyst Herbert Stein once said: “If something cannot go on forever, it will stop.” Property booms do not last forever, but the policy and political responses to a boom usually end up making their most lasting impact during the resulting crash. Even with enlightened zoning and low costs, houses still take a long time to develop and lending for property can dry up overnight, leaving a big supply hangover of vacant or halfcompleted houses when the music finally stops.

Then the politicians will call for stimulus for the housing market.

James Young, Department of Property,
Faculty of Business and Economics

Housing apartheid

We are told “we bought at the right time”. But there was no strategy; we simply bought a house in the early 1990s because we wanted to create a home. We are still there and our children are now, respectively, a first-year Arts student and a recent Law graduate.

It would be presumptuous for me to know the implications of the Auckland property boom for the next generation, so I asked our children. According to my daughter in Wellington, “it just disincentivises living in Auckland. There’s really no point moving back up at any stage because I won’t ever be able to afford to own a house there” and “maybe there will be fewer young people there over time due to the property boom”. In Auckland, my son’s view is that “more people in our generation will rent and never buy into the market”.

They are among the lucky ones, with education and opportunity. The chair of a Whangarei emergency housing trust recently told me of “refugees from Auckland” regularly knocking on his door. Unemployed and evicted, they are moving north with family.

There is an exodus of the out-priced. The costs felt by those remaining are seldom only monetary. The frenzied Auckland housing market represents an assault on attaining residential stability for all but the privileged. Indeed, the gap between those who can and cannot afford a house is now a yawning chasm, a situation economist Shamubeel Eaqub has labelled “housing apartheid”. This hyperbolic metaphor is designed to shock. But we need to be shocked before we become numb.

Perhaps some implications for the next generation may be interpreted as opportunities (out-migration to regenerate the “regions”; new forms of community living). Others are foreboding (household crowding, disappearing ownership aspirations). Ultimately, a sense of being at home is under threat and a more footloose generation is less sure of where they stand.

Aucklanders once marched on the streets in protest at racially crafted apartheid policies. Eaqub’s closer-to-home economic “apartheid” is unlikely to be as challenged as long as profit from property remains a national obsession.

Robin Kearns, Professor of Geography,
School of Environment, Faculty of Science

New opportunities

There are a number of issues behind this question. The current “boom” may not last forever, and at some point, experts say, there will be a price “correction”. Indeed, there are already suggestions that property prices in Auckland have plateaued. However, any price correction at the moment may not mean that prices significantly drop: it may be a result of current mortgage lending restrictions, and there is on-going pressure from immigration.

Housing affordability, where the ratio between what we earn and what housing costs, will impact any generation. Prices go up, and (we understand) come down. Precisely how much and when, requires a very good crystal ball.

However, what can be predicted with a little more precision are the consequences of the driver that sits behind the current house price “boom” – that Auckland’s population is growing, and forecast to reach about 2.5 million over the next 20-30 years. It is this growth and its implications that may impact future generations more significantly, and it is not all negative.

The city will certainly be denser for future generations, and offer a wider range of housing options other than the detached house in a suburb – town houses, and medium and high density apartments, co-housing, and so on, in more vibrant neighbourhoods.

Overseas experience in places like Portland, Oregon, show that younger generations are less interested in owning a suburban house and mowing lawns, and more attracted by the vibrant life of the inner city and meeting friends in cafés. Higher density also facilitates more walkable neighbourhoods, and potentially reduces car-dependency for work commuting trips. “Work-from-home” opportunities will increase over the next decade, reduce the need to commute, and make the local neighbourhoods more significant in people’s lives. Broader housing options will also offer a wider range of house tenures, and choices about renting versus owning property as an investment.

So while acknowledging that there is a current house price crisis in Auckland, the associated population growth and urban development responses will deliver new and different housing opportunities for the next generation.

Errol Haarhoff, Professor of Architecture,
School of Architecture and Planning,
Co-Director: Urban Research Network, NICAI

What do you think?

Our contributors’ views are intended as the beginning of a discussion. You can continue the conversation by leaving a comment below.

Letters to the editor are also welcome. Please email ingenio@auckland.ac.nz or post to Ingenio, Communications and Marketing, Private Bag 92019, Auckland Mail Centre, Auckland 1142.

The views expressed above reflect personal opinions and are not those of the University of Auckland.

 

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6 Comments

  1. Doris Chiang says:

    Interesting article. It’s actually pretty sad to witness the property refugees from Auckland (middle income families) sold their house (cashing out from the property boom) and moving out of Auckland for better housing perspective. There are two families I know has made this move so far. How many more will follow? With those families moving out of Auckland, the social-economic and age gap will increase in Auckland, and affect the social & physical infrastructures and planning of the city. I don’t see the new opportunities Professor Haarhoff sees, but problems we are going to face, as Professor Kearns pointed out.

    • Doris Chiang says:

      Apologize. I should describe the middle income families move out of Auckland as ‘property migrants from Auckland’ instead of ‘refugee’. There are property refugees in Auckland though, as described in the article. And some other interesting concepts are happening; such as siblings/friends have to enter the mortgage together to get the loan & Adult children became secondary mortgagee of their parents.

  2. Chris says:

    How much of a problem do people consider the factor of interest on high priced loans over time on new property buyers available income over their lifetime.
    i.e. a $700,000 loans interest over 20 years, and the effect of that on potential lack of savings for first time people buying in the current market on for their retirement etc (or ability to invest in other things/diversify financial investments?)

    If the pricing in the 90’s was e.g. 4x income and now is 7x the extra interest cost alone would it seems initiate a significantly different model of financial freedom/stability compared to the previous generation for new buyers?

    That coupled with Student loan repayments reduces overall ‘nest egg’ and passing on of assets to children or assisting them financially to the same level as the previous generation.

    Or am I missing something fundamental?

  3. Paul Reyneke says:

    The article is nicely balanced and not the beat-up we see in the news all the time. Social engineering is unfortunately a fact of life, but the more we can stay away from trying to manipulate social trends, the more damage we do.

    What’s wrong with people moving out of Auckland because they became ‘property migrants’? Almost a third of NZ population is living in Auckland – it must be a good thing if more people move out of Auckland and into the provinces. So maybe the natural forces of rapidly increasing prices in Auckland is just that: a reality

  4. CP says:

    My wife, two kids and I left Auckland and NZ entirely to return to the US, largely due to housing prices in Auckland. I had continuation at the University and we could have stayed forever, and would have loved to. It is going to be difficult to recruit academics from outside NZ, given the relatively low wages and high housing prices.

    Unlike the housing bubble that burst in the US, there are not empty houses sitting around waiting to be sold. Housing prices are quite high and the houses are filled, even outside Auckland Central. Also, the traffic problems make living outside Auckland Central unappealing. We didn’t see an end to the increasing prices and related issues so we left.

  5. Arthur Conacher says:

    A long time ago blocks of flats in the UK were bulldozed because they had become slums. Is this the future of high-density living not just in Auckland, but in cities worldwide? Increasingly the world is trying to cope with too many people: another reality.