The current leader of the Labour Party in New Zealand, Andrew Little appears to be more than a few sandwiches short of a picnic. His career before becoming a professional politician consisted of being a union manager. His commercial experience is, to put it kindly, somewhat limited. But he is steeped in the ideology of class warfare--workers versus the capitalists and that sort of thing.
We find ourselves embarrassed by the apparent ignorance of the man. He often shows that he has little clue about how three quarters of the rest of the population think, live, and act. For Andy, it's all about class warfare: the oppressed proletariat versus the capitalist pigs.
He is at present promoting a bill in Parliament, the Healthy Homes Guarantees Bill. This would require landlords to ensure that all rental homes are warm and dry, and that each home must have a heating source. When it was pointed out to Andy that this would inevitably mean that rents would go up, Andy fiercely denied that would be the case, unless the respective landlords were rapacious and greedy.
One cannot miss the slime of class warfare oozing forth.
Andy's bill would require many landlords to invest more capital into their rental houses. In Andy's world, capital is apparently free. If landlords do have to invest more money, they can easily absorb the costs of it apaprently. What does that mean? Let's say it costs an extra $5,000 investment to bring the house up to an artificially contrived bureaucratic standard of warmth and dryness. No probs. Implication: landlords are rich people. They can afford it.
Mr Little rejected suggestions the new requirements would lead to an increase in rents, saying landlords will have plenty of time to absorb the cost. "That in my view, is a cost landlords will be able to bear over that time, given the increasing value the property will enjoy over that period. "This does not need to lead to hikes in rents, and only greedy landlords will be seeking to hike rents for this reason." [Newshub]
If landlords, says Andy, put up rents to get a return on that additional required capital, they would be greedy. Funny that. Doubtless when Andy goes down to the bank and deposits a bit more of his more-than-exorbitant salary (he is one of the rich, after all), he expects that his additional capital will earn interest from the time he deposits it in the bank. He expects a return on his capital. But, by his own moral abacus, Andy is greedy. He has no right whatsoever to expect the bank to pay him more interest on his additional investment. He has plenty of time to absorb the costs.
Ah, but Andy has a counter argument. He says that if a landlord has to invest more into a rental property to bring it up to Andy's standards and expectations, he will soon be compensated by a rise in the market value of the property. His ignorance of the market place and Economics 101 becomes laughable at this point, if it weren't so embarrassing.
The first rejoinder is to point out that if the entire rental market has a legislated minimum standard of housing, the rental housing supply will have undergone a secular or national supply shift. Once, when every house had a long drop out the back, the first houses to put in flush toilets were deemed more valuable and their market value rose. However, now that every house has a flush toilet, the matter is moot. It is normal. It is expected. No rise in comparative market value because it's standard. Andy must have missed that lecture in Economics 101.
Secondly, Andy is trying to enforce his provincial, narrow morality upon other human beings. Actually, it's likely not his morality at all--at least when it comes to his own money, as we have suggested. Andy's morality is probably reamed with hypocrisy. He wants landlords to act one way, whilst he acts in another. Like all socialists, Andy considers himself qualified to hector others about how they are to use their capital and income.
Thirdly, Andy ought to know that markets over the longer term are rational--that is, they enable maximum possible return and value for buyers and sellers, renters and tenants. If landlords are forced to invest more into their rental properties and they cannot generate a return on that additional investment, in the longer term they will end up placing their capital elsewhere where returns are more equitable and just. They will sell off their rental properties, repay the banks who likely loaned them a good deal of the capital in the first place, and invest elsewhere. The most likely long term outcome is that the stock of rental houses will diminish and therefore will become more expensive.
The rational market reality, then, sans Andy's class warfare invective, is that if landlords are forced by law to invest more capital into their rental houses, either the rents will go up to provide an adequate return (that is, more than term deposit rates at banks), or they will sell off their rental houses. The stock of rental properties will diminish, pushing up rents. Either way, the poor--those whom Andy professes to champion--will suffer.
Never mind. At least Andy will feel good.
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