Last week Michael Littlewood, a member of the Task Force on Private Provision for Retirement, raised five fallacies in the superannuation debate, saying it is powered by 'alarmist nonsense' and 'dodgy data.' In the final of his two-part series, he analyses home ownership and what he describes as the biggest fallacy of all - that Kiwis don't know what's good for them
Home ownership rates are falling. You've seen the headlines. Home ownership peaked in the late 1980s; 74% of all homes were owned by occupiers in 1991.
That has fallen and in the 2001 Census now stands at 68%. The government, the New Zealand Institute and now the Salvation Army seem to be saying this shows we no longer have the ownership and saving ethic of our parents. Something must be done to restore the balance so Kiwi battlers can again afford to put a self-owned roof over their heads. The government can help fix this so-called 'problem.'
But is the 'falling home ownership' story true? Probably not.
The most that can be said about Census numbers on home ownership is they show only the number of occupiers on Census night who say they own their own homes. However, the numbers don't till in all the gaps about the owners of other occupied homes – the other 32% of all occupied homes in 2001.
They don't count unoccupied houses in the analysis (10% of' all houses): even houses that are usually occupied but happened to be empty on Census night.
There is a rising number of Census respondents who simply refuse to answer the question - about 8% of all occupiers in 2001; up from 0.5% % in 1981.
Presumably, many of these houses are owned by family trusts associated with the 'tenant' occupiers who refused to say who owns the house.
So, if someone tells you home ownership rates are falling and quotes the usual headline numbers (74% down to 68%), you will know immediately they don't understand what the Census information actually says. You might therefore be entitled to wonder about some of the other things they say.
Housing is becoming unaffordable. The neat worry about housing is that prices and the incomes of actual or potential owners seem somehow to have become disconnected.
The best-known measure of this is the quarterly AMP Home Affordability Index. The most recent index, released in January, showed the 'affordability index” in its steepest decline in nearly nine years. The cost of a house is seemingly moving out of the reach of Kiwi battlers.
Is house ownership really passing out of reach at the bottom end? Possibly not.
Things may be changing but you won't get any real help from the AMP Index. It doesn't focus any attention on first-time buyers. This should be the subject of any special study of 'bottom enders.' We shouldn't be too concerned from a public policy perspective, for example, with existing owners who want to trade up. The assumptions used in calculating the index are too blunt to be useful for any but the most superficial analysis.
Anyway, the basic premise seems flawed. If houses are sold, then potential buyers have to persuade lenders that the buyer can afford them.
Houses are still being bought and sold - maybe at higher prices than recently but, with immigration down, it's no longer rich foreigners who seem to be propping up the market.
The alternative bogeyman is the investor who for some reason, is implicitly assumed to be happy to pay over-the-top prices for 'investment' properties, despite clear evidence of falling rents.
So, there may be a temporary imbalance but that won't, and can't, last.
If people pay too much for a house - as occupier or investor - you can be sure the market will eventually expose their mistake, perhaps even in ways the owner won’t notice (low or no price increases, even for some years).
The market in Australia now seems to be adjusting in expected ways; the same will probably happen in New Zealand.
House prices must maintain contact with the disposable incomes of the potential occupiers and rents.
That's the wav the house market works and there isn't much a surplus-laden government can do except, by making things worse by boosting demand and prices. However our present government seems to have fallen for the idea that it can change things for the 'better.' That's a mistake and will almost certainlv have unintended consequences.
(Abridged)
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