Empty homes beg question ‘Why build?’

In Queenstown nearly a third of dwellings are unoccupied, according to the last census. PHOTO: ODT FILES

Everyone is aware of the nation’s current housing crisis. The solution is easy as so many claim. Build more houses. Why doesn’t the Government see this and simply get on with it? But are those touting a supply shortage overlooking more deeply rooted causes?

Let’s start by turning the clock back 30 years, when home ownership in New Zealand was at its peak.

In 1992, there was one dwelling for every 2.7 people. It may come as a surprise but that hasn’t changed in three decades, according to Stats NZ. We still have the same ratio of dwellings for our population today. And back then there wasn’t an affordability problem.

At the macro level the supply argument looks questionable.

One stat that has changed is the number of New Zealanders who now own more than one home and share their time between them. As a boomer, I look across my peers and many of them own several homes. They are not putting their unoccupied dwellings into the letting pool.

They are just enjoying their nomadic lifestyle as they migrate from one residence to the next, empty-nesters building a legacy of empty homes.

According to the last census, there are more unoccupied dwellings in Auckland today than in London, a city with five times the population.

In Queenstown nearly a third of dwellings lie unoccupied, according to the last census. Property prices have created a wealth concentration for retirees but no-one can begrudge them for sinking spare cash into the residential sector. Many of them still smart over 1987 and the anguish that resulted from a different investment choice.

Lets face it. Nothing has rewarded this cohort more over the past 30 years than residential real estate. And benign tax laws have encouraged the behaviour.

How does this affect the aspiring new homeowner? Well it’s easy.

Boomers have a generation advantage over first-home buyers. They’ve had 30 years to build equity in their own home, making it easy for them to outbid a newbie when the house next door comes up for sale.

The small return they might make in rental income is immediately brushed aside in the expectation that the property will return two to three times tax-free capital gain over the ensuing 10 years. It’s the same thinking that drives a ponzi scheme.

Moreover, the easily acquired wealth for this generation spills over to their offspring. Making money is simple, parents assert, passing on their wisdom. Just climb aboard the same guaranteed wealth gravy train.

We’ve even allowed it to inculcate our language, using terms like "property ladder", as though this is a fail-safe form of investment, regardless of what size mortgage you take on. And while we’re on language, isn’t home ownership a misnomer? It’s the bank who is the true owner. Try missing a few repayments and see who really owns the property.

Even prices that fall under the hammer at auction are not a true reflection of market value. There’s a compelling argument that the banks set the prices for entry level houses by how much they’re prepared to lend a first-home buyer more anxious to secure a set of keys than worry about the quantum obligation they have just taken on.

Of course, the advocates for building more houses as the panacea are usually those with a vested interest.

Take the banks. Residential property is a safe and easy place to expand their own balance sheets. They have little appetite for policies that might curb demand. Build more houses and we stand ready to lend, is their muted clarion call.

Banks are a business. Expanding their lending fulfils their purpose, stripping profits from ever larger mortgages to send to their mostly overseas shareholders. Banks, of course, have the ear of politicians, who are also caught with their conflicted interests. Scan through the personal investments of our rulers and you'll find most own multiple dwellings. They’re unlikely to support any initiative that might undermine the value of their own portfolios.

The collective voices are in unison. The mantra clear. Let’s not legislate to derail a market bubble while everyone’s enjoying the ride. Let’s go with the argument for expanding supply.

Developers, too, latch on to the easy supply side solution. It suits them. Releasing a land bank to residential subdivision is the laziest way to make money. As a very successful developer once said to me: "The last thing you ever want to do as a developer is turn the soil. All the money is made in rezoning ... the paperwork." More grist to the ponzi.

Housing is a primary responsibility for every nation. It’s one of life’s essential needs, along with food and clothing. But in our pursuit of housing as a one way investment that never goes down, have we lost sight of its axiomatic purpose? Shelter!

There are many highly developed places in the world where house prices seldom exceed general inflation, where security of tenure can be obtained with realistic rentals that don’t require taking on gargantuan personal debt, relying on price growth to make any sense. Begs the question — are we buying to put a roof over our heads or have we become blindingly besotted with a highly leveraged gamble?

Of course, artificially low interest rates have encouraged the ponzi scheme. Covid may have been the trigger for the recent plunge in rates but with lots of cash sloshing around, no-one should be surprised where it might head.

"Why put money in the bank" is the catch cry of many boomers I hear today, as they splash out on another property.

As long as Government is expanding the money supply, there’s a cogent argument for salting money into hard assets. Where else can you preserve value? But as a society we have to realise we can’t play monopoly with one of life’s essential pyramidal needs. There’s no free lunch.

Housing affordability is affecting the aspirations and livelihoods of our next generation. And that threatens the glue that keeps society together. Government has to be bold enough to unravel the threats of runaway demand, and not just seek an answer in more housing supply.

If it doesn’t act to curb demand, the risk is the market will make the call.

In which case, shelter could go the way of Dutch tulips and all ponzi schemes.

 - David Cole is a past chairman of the Queenstown Lakes Community Housing Trust.