The fallacy of 'housing affordability' and intergenerational theft

OPINION

It is fashionable comments bait in New Zealand to write emotively about how there is “intergenerational theft” going on.

I blame Bernard Hickey for the “Dear John/Ma/Pa” movement and his obsessional mumblings about “housing affordability”.

The newspaper editors sense impending circulation rises from those smart enough to read but not smart enough to think, and have conjured it up for the benefit of their banking and real estate advertising clientele.

It has spread like the winter flu to the usually very sensible and intelligent leading business journalist at the NZ Herald who has shamelessly jumped on the populist bandwagon with some bait of her own.

Hence time for me as probably the only commentator of the “younger” generation X/Y/Z, or whatever the term now is, who will call it as it is.

No generation is inherently more or less greedy or thieving than any other, or more or less hard working. Of course older people have more assets than younger ones and their children inherit what they have squirrelled away.

Those shouting the loudest about “housing affordability” and “intergenerational theft” tend to be white and middle class, which is why they are getting some traction in the media.

Poor people don’t complain so loudly about not owning their own home because they haven’t even got enough money to pay rent. The taxpayer already pays that for them directly.

And as for “intergenerational theft”, their parents never had any money so if they do have the energy to whinge it is the staple stuff about government - and nothing as complex as singling out old people as they are going for the wallets of everyone.

“Housing affordability” and “intergenerational theft” is the domain of nice white middle classes who are peeved that they cannot afford where they think they should be able to on their income and are having to contemplate moving to where the poor people used to live.

Taken to a logical conclusion, if you buy into the “intergenerational theft” argument you should also be supportive of the rubbish Matt McCarten and Hone Harawira spout about income and wealth redistribution as a “solution” for it. Maori have been shouting about it for years.

People do want to transfer wealth to their kids and otherwise choose where they wish to place it. They do not want to pay or make sacrifices for SOCK (some other c***s kids). That is the bottom line.

The residential property market is a bit like protections to do with farming and is sacrosanct. A massive drop in the value of residential property would kill any New Zealand government, which is why it probably never will happen. This is the new “normal”.

The oldies all talk a good game but none want to pay the ultimate sacrifice – unless, of course, it is for their own kids. Well, the kids who have sucked up enough to them to be left in the will or obtain large interest-free loans with Marshall clauses.

The oldies are like socialists in many ways and just like to be choosy at their targeting, usually to those bludger kiddies most in need because of their own ineptitude. Just God help a government if they use that Mana Party method and make that decision to take their money to help other people’s kids.

These nice middle-class asset-rich oldies have welched on paying their kids' university fees, not because of “intergenerational theft” but for the perfectly intelligent rational financial decision – why pay for it when the government is handing out the money interest-free?

Many people I know have taken that money set aside for university and loaned it “interest-free” to their favoured kiddies to put a deposit on a house, therefore pushing up entry-level prices on kids who have actually worked to earn a deposit.

"Intergenerational theft"? Well, the Labour government took the interest off those student loans, didn’t they? Unintended consequences of interventionalism?

If I conjure enough gusto I will post on the nonsense of “intergenerational theft” in a wider context, but housing is a great place to start.

It is not the fault of the collective baby boomers that younger New Zealanders have a tragic ambition-ability gap when it comes to housing. Of course, the easiest way to own a home is to marry someone with one and then divorce that person. You get at least half of it.

Don't laugh, women have successfully pulled this one off for years.

I work in the intergenerational wealth transfer industry, part of which is trust formation. The industry is not exactly short of clientele. New Zealand has by some counts more than 200,000 family trusts alone of various drafted qualities and sizes.

Apparently, little old New Zealand mums and dads are world leaders. This proves that a fair few New Zealanders intend to keep their kiddies in the comfort they have become accustomed to.

Unlike in the Asian culture – who tend to distribute to their young – New Zealand oldies are hell-bent on clinging on a bit longer to their cash.

In the process, they make crazy decisions to lend or give advantage to one lot of kids over another under the cloak of satisfaction that it ends up "equal" in the end – not unlike Mana Party policy.

In an ideal world, people would spend all their money they earn in the time they are on the earth and on themselves.

I wrestle with the knowledge that I know that no one person actually needs $100 million against the greater principle that no one should have the right to take that from them and give it to other people.

If there were no trusts and no intergenerational wealth capable of being passed on and you have to spend all your own money, think of the boom to economies. 

The "greedy" baby boomers would have to spend every cent. Their children would have zero expectation of receiving anything and would have to go make their own way in the world.

But back in the real world we have to worry about unusual thinking from commentators pondering the affordability of housing and how that affects these poor generation X-Zers.

It is not “housing” per se, is it? It is buying a house. Renting is not highlighted because it is still viewed as “wasted” money and not the same as you would view interest paid on your mortgage as “wasted” money.

Yet renting is a perfectly reasonable and healthy activity, especially if you are female and never use the kitchen as you are in hot demand.

As a direct result of never doing what other people are rushing to do I have been renting – despite being able to “afford” any house within reason that I wish – my entire working life.

I can’t see any lobby group marching down Queen St on my behalf because I am a renter, so I don’t understand the leprosy type aversion New Zealand has to middle and lower classes and income earners renting.

I do it, so they well can as well. The way people carry on, you'd think owning a home is required to draw breath.

People quote “security for their kids” as a reason for home ownership, which is emotive garbage for “I can’t be bothered moving all the time”.

I have seen no evidence that children become insecure when they move home – especially if it is nicer than the one they lived in before.

Divorce and unhappy marriage provide far more insecurity, so parents should perhaps focus on a happy home instead of what name is on the Deed of Title.

The bottom line is that most people who will never be able to afford their own home make bad tenants because they do not respect other people’s property, which is mainly why they are poor in the first place and stay that way.

Before the crying starts on this opinion, exhibit A in my defence is the Housing NZ stock. Want to live next to those tenants?

The answer apparently is to make housing more affordable and give them taxpayer assistance so they can buy their own home.

This makes as much logical sense as helping your eight year old buy their own iPad as a reward for damaging yours. No parent would do that, so why should the taxpayer?

Well, some parents I know do, and the consequence is the kid keeps smashing up things.

I overheard a friend mumble “housing is very affordable, I have 30 of them”. He pays tax on them if sold as he meets revenue definitions. He has a point.

If housing was unaffordable there would be homes sitting now in New Zealand with no buyers capable of buying them before the market applied its mechanism for prices to drop.

Seven thousand homes were sold in May 2012 on this measure alone. Surely they were all affordable?

Affordability comes down to banks extending credit as most residential buyers need a mortgage. Cash or large deposit buyers effectively don’t bid for homes against other buyers. They bid against the buyer and the bank.

Any wonder house prices increase and lending does too?

The Housing Affordability index is not a particularly accurate one since the world seems to have differing measures and the concept is awfully complicated.

It seems to be based on median gross income (itself a misnomer) required to “afford” to borrow for a house and takes zero factors into account (until some index adjustments), such as state, federal or other taxes, whether it is leasehold or freehold, lending requirements at banks and spending habits or requirements across countries.

It conjures up excuses for people to whinge that housing is not affordable and oldies own all the homes – which, of course, is tripe. Like any index, it is fraught with difficulties and individualities.

I have never seen any sense in the infamous Expat cost of living indexes. Many appear contrary entirely to my spending habits – ditto the CPI.

New Zealand is running at 1% yet no one seems to believe it. We only believe the index movements we want to for our own lobbying purposes.

Every "expert" has a solution, analysis and diatribe on what they would do to make it more "affordable".

From my reading, the largest problem internationally is that you are not comparing like to like. I will give you the easiest extreme example.

A Hong Kong 350sq ft (gross) flat is standard accommodation. It is an effective leasehold until 2047, when the mainland sets conditions. This is what a young working middle-class couple would live in perhaps even with a small baby or child.

If we were to compare the same 350sq ft (gross) leasehold flat in Auckland I can tell you right now what is more affordable without even searching – Auckland.

New Zealanders do not wish to live in leasehold flats this size, making the comparison impossible as there would be few takers. New Zealanders expect larger freehold homes on larger sections.

Most desirable cities outside Australia and New Zealand do not offer such luxurious accommodation choices in their housing stock.

A nice-sized house with a small fenced section at the back in Mt Eden, for example, may be listed at $NZ700,000. The comparison in Hong Kong would be half an hour in a fast train away and start at $NZ3-4 million – leasehold.

In essence, we can forget an index as it doesn’t mean anything really. Housing affordability becomes a very personal question for voters as it is all about “them” –

1. Can “I” afford “that” house that “I” like?

Not the obvious question I would ask, which is:

2. What makes you think you should be able to afford the house your friends/acquaintances/Bob Jones has?

The problem with New Zealand-think is that Kiwis feel aggrieved with specialness in terms of falling housing affordability but are not. Everything a government cannot immediately solve with a tax or injecting billions into seems to be a “crisis”.

When does “crisis” simply become the new norm? As in: property prices have increased everywhere that people find desirable to populate. It is not a New Zealand issue it is a worldwide one.

Let us look at some other cities in the world that are remotely desirable for sensible people to wish to live, and their current conditions. Do it yourself with a city you would like to live in. Google it with the words "housing crisis".

Sydney – has a housing crisis . It has a CGT as well. Doesn't make housing more affordable or there being less of a "crisis".

New York – hideously expensive, tiny apartments. Has a housing crisis.

Hong Kong – Read this and weep. Divide the HKD price by 6 and that is NZD. Take the sq ft quotage for the size and understand that includes all the areas in the building divided up so is a gross quote. And remember, you don’t buy land in Hong Kong as the entire city is leasehold until 2047. We have had a housing "crisis" for the entire seven years I have lived here. The locals have stopped complaining.

London (and whole UK) – Same parental fear that kids can’t afford to live in London, woopee... Apparently, London has a housing crisis too.

America (except NYC) – Doesn’t have a housing crisis just has a terrible job market.

Funny that considering it took political pressure to loan money to losers, who could never pay the loans back, on little or no deposit to collapse the entire market apart from NYC and nice parts of LA.

Building more homes and reducing compliance costs may be part of the solution.

It has to be in the outlier of Christchurch as they have limited stock presently but a) how quickly can these be built? b) where will they be built? and the most pertinent in Auckland c) will Auckland still have empty apartments snobbed by residents as “too small” for their liking?

Build and they will buy and come. Yes they will, as there are precious few "investments" out there people think they have more control and expertise in and over than property. But people will keep having more children, immigrants will keep showing up and nothing will stop that.

More importantly, banks will keep loaning money, which means you do not bid against other home buyers, you bid against the home buyer and the bank – and often a deposit or guarantee from their mummy and daddy with a Marshall clause in the private “loan” contract.

How on earth is Prime MinisterJohn Key meant to "improve" "generational equity" short of making parents turn over their wallets or house keys to their kids? Or heaven, help them, other people's kids?

Until my generation (X) and younger realise that they cannot afford to live in the sort of homes in their 20s and 30s as their parents do in their 50s and 60s then housing affordability will always ultimately cause disappointment.

Because somewhere and somehow we all want to own or rent a bigger home in a nicer area that we are stretched to afford.

So stop the Baby Boomer Bashing for the reason of "housing affordability".

One day the house will be all yours.

Cathy Odgers is a lawyer based in Hong Kong. She blogs as Cactus Kate.