Masters of the Universe At Work

It's Your Money They Are Wasting

We have posted several pieces on the NZ Government's "housing policy".  A recent comprehensive article dissects the situation--both past and present.  As a result the Government is in a messy mess.  

We have made reference to the inexperience and general incompetence of the Housing Minister, Phil Twyford.  His only real world experience to date has been in prancing around the world with Oxfam.  He is a big-vision man with small-time experience or wisdom in the real world.  That's been problem Numero Uno.

Secondly, he and his colleagues belong to the socialist mindset that tax payer extorted money thrown at an idea or project can solve any problem.  By spending money, great things will magically come to pass.  There appears to be no commitment to hard nosed, brutal critical evaluation and risk management in policy development.  There appears to be very little, if any, self-critical scepticism.  By throwing money at the so-called "housing problem" all obstacles will be overcome.  Public announcements of "progress" seem to represent little more than boasts, and "big-noting".  What we have been left with is the state's half a dozen Kiwibuild houses which few, if any want to buy.

The houses that have been built in the programme thus far have turned out to be purchased by those who meet certain criteria--in particular they are "middle class" and can afford them.  The question is begged: what on earth is the state doing building such houses for those who can buy them pretty much everywhere on the open market--particularly if they are willing to buy already existing houses in areas that are "middle class".

Here are a couple of excerpts from the article by Henry Cooke, published in The Guardian.

Buyers' Remorse

Taxpayers' Taken For a Ride

Phil Twyford used to "work" for Oxfam.  He rose up the ranks, firstly by becoming the Executive Director of Oxfam New Zealand. Then he moved on to Washington.  According to his "blurb", 

Phil’s strong belief in justice led to him becoming Oxfam’s Global Advocacy Director, based in Washington DC. 

From there his "strong sense of justice" led him to entering politics in New Zealand and becoming the present Minister of Housing.  He took this very responsible position with no commercial experience.  Mind you, deleterious as this may be, it is not unusual.  Most Labour MP's in New Zealand either worked as bureaucrats or unions, before entering politics.  But because Phil made it to Washington, he was regarded within the ranks as a bit of a genius.

His first great achievement as Minister of Housing was to launch KiwiBuild.  This madcap scheme put the Crown as the guarantor of houses for first-home buyers.  This cohort had been identified as the most needy.  Once they got on the "property ladder" they would be away, able to move "up the ladder" by selling and buying houses as they chose.  This was just the sort of scheme a bureaucrat with no commercial experience and zero understanding of how free markets actually work would put together.

How is the madcap scheme going?

Incompetence or Arrogance

Minister Out of Control

Mike Hoskings
NZ Herald

Do you think it says something about the mentality, outlook, and perhaps even sheer arrogance of Phil Twyford, that he decided on our behalf, without the permission or knowledge of Cabinet or the Prime Minister, to simply change the rules on KiwiBuild?

The original deal was, if you were lucky enough to be drawn from the ballot you would appreciate the Government's help in getting you into a first home 0 and therefore wouldn't flip it, or flick it, for profit.  But unbeknown to just about anyone, apart from Grant Robertson and Shane Jones, Twyford decided that wasn't a good rule. He decided you could change it.  Instead of 100 per cent of the profits being taken off you, if you were caught, you had to give back just 30 per cent.  In other words you got to keep 70 per cent of the profits.

In what person's right mind is that fair, sensible, logical - or even sane? And what moron would think they can do that with other people's money? And what grandiose clown thinks he can do that without even getting the boss' sign off?  If you don't think that's as good an example as you will ever get that this whole KiwiBuild thing is a snake oil scam, then you are as mad as Twyford.

By the way, if you don't want to flip the house you can rent it out as well. Oh, you're not really allowed to, but if they catch you, you will only be pinged for part of your windfall.

So what do we have so far?

Way Beyond His Depth

He Means Well

What happens when you put an Oxfam bureaucrat in charge of a commercial business?  A rort.  

Phil Twyford, former Oxfam bureaucrat,  is the Government' Minister in charge of providing "affordable housing" for poor people.  He is failing in a most public way.  He has become the latest emperor to be exposed naked by his own incompetent ignorance of the real world.

Mike Hoskings writes:

The Housing Minister can be grateful that his Immigration counterpart is currently immersed in the Government's biggest shambles.

Because if it wasn't for Iain Lees-Galloway, and his nightmare of the Karel Sroubek decision, then Phil Twyford would be front and centre and getting a great deal more attention than he is over what is increasingly looking like one of this Government's potentially most damaging policies.

Here are some numbers I doubt many of us were aware of: there are only 338 qualified buyers so far. That's it.  You would have heard of the thousands that applied, of course. The Government wanted you to hear that. The thousands that signed up for the updates, the thousands that showed an interest. But an interest isn't a deposit, it isn't a deal, and it certainly isn't a sale.

That number is 338 (qualified buyers), and ballots have had to be extended because of lack of interest.

And why? Well, because as we have also told you, and these past two weeks have revealed it, KiwiBuild is not the scheme it was portrayed as, it is not for the low waged, the locked out, it is not the social housing programme it was painted.

Slums in the Making

KiwiBuild: a ‘Community Trainwreck’


Teuila Fuatai
Newsroom

A year after the coalition Government took office, its flagship housing plan KiwiBuild is barely off the ground. At this year’s Bruce Jesson Memorial lecture, Monte Cecilia Housing Trust’s Bernie Smith argued KiwiBuild’s flaws not only perpetuate housing unaffordability, but cause further intergenerational social problems.

Bernie Smith tells an interesting story.  After working in some of the most deprived communities in rural Australia and Papua New Guinea, Smith came back to New Zealand in 2016. At that point, homelessness and housing affordability were among the worst ever seen in the country.

Just over a year later, he watched Jacinda Ardern and her party enter into a coalition Government with New Zealand First and the Greens. Following through on their election promise, Ardern and her newly-minted Housing Minister Phil Twyford - a fellow Aucklander - announced their plan to ramp-up New Zealand’s much-depleted housing stock. By July 2019, KiwiBuild targets plan for 1000 new homes on the ground. After that, a target of 5000 new homes has been set for July 2020.

As chief executive of South Auckland based Monte Cecilia House Trust, Smith looked at the numbers eagerly.

Vain Idiots Who Believe Their Own Press

Phil Twyford's Great Confidence Trick

We have been cynically chortling into our porridge for some months.  In New Zealand we have a strange phenomenon at play which resembles more and more the Hans Christian Andersen tale  of the naked emperor.  

That tale, you recall concerns two weavers who play a huge confidence trick upon everyone except a little lad.  They tell the vain, clothes-loving emperor, that they will make him a magical set of clothes which can only be seen by upstanding citizens.  The unethical, immoral, or stupid will not be able to see his magical clothes at all.  Of course the dumb, vain emperor plays along and ends up parading down the street naked.  As we all know, the whole town praises the emperor's new outfit, not wanting to be tarred with epithets like "immoral" or "stupid".

The young lad states the obvious.  Refusing to go along with the crowd and the emperor, he baldly states, "But, the Emperor is naked."

We have just such an emperor in New Zealand who is the minister of housing.

Simpletons At Work

Leftist Politicians Can Do Considerable Damage To The Poor

When left wing political parties win power at the ballot box one usual consequence is that the government starts to be run by politicians who are ignorant about markets, business, commerce, and the way "things work".  But no worry.  The Left has a reflexive faith in rules, regulations and laws to make all things right.  

Usually it has no sensitivity at all as to how free markets work.  But markets do not change.  They work-either for good or bad.  Thousands upon thousands of people out in the "real world" think about the impact of new rules and regulations upon their businesses.  They then take prudent commercial decisions to maximise their returns and reduce risks--in the light of the new realities brought in by the new government.  Leftist regimes, on the other hand, almost always have no clue about the unintended consequences of their rules and regulations.  

We are presently seeing an apt example of this phenomenon in New Zealand.  The Leftist government decided that residential tenants were getting a bad deal.  They needed protecting.  Therefore, the State has decreed minimum standards of comfort to be met in all rental properties throughout the country.  Typical, classic Left wing magic wand stuff.

Result?  You guessed it.  The supply of rental houses reduces, sharply.

Welfare For the Wealthy

Derision For Disappointed Hopes

We find ourselves scratching heads over the antics of the NZ Minister of Housing, Phil Tweeford.  He is a bright cheery chap, but we get the impression that he is way out of his depth.  He appears to be a living, breathing example of the Peter Principle--that is, "People in bureaucratic organisations tend to rise to their level of incompetence",  or "members of a hierarchy are promoted until they reach the level at which they are no longer competent".  

Phil has announced a grand initiative to build lots and lots of homes so that people can buy their own house.  He has grandly named his policy, "KiwiBuild".

Commentator Mike Hoskings took one look at it and pronounced it to be a failure even before the first sod is turned.

So the surprise around the affordable house eligibility rules out yesterday was the $180,000 salary cap for couples.  We all quite rightly agreed the ceiling amount was a lot of money, which exposes two simple truths.

One, Housing Minister Phil Twyford has finally worked out, or been told, that you actually need quite a lot of money to buy a house.  What Phil wanted to do in the election campaign is have you believe he was the saviour of housing, that he was going to build thousands upon thousands of cheap homes that regular everyday Kiwis (Labour supporters, Kiwi battlers) could buy and move into.   All very Michael Joseph Savage, except this isn't 1935.

What he has discovered is that, and we had these numbers yesterday, you actually need well in excess of $100,000 a year income to buy a three-bedroom so-called affordable home.  And if Phil had put these homes out to the market he was intending to put them out to, no-one would be buying them because they don't have the money.

Which brings us to point two.

The Kim Jong-Un Porky Award Goes To . . .

Phil Twyford, NZ Minister of Housing

If Twyford Can't Phil us in on KiwiBuy/Build, Who Can?

Duncan Garner
Stuff

Seriously, what has Labour and its MPs been doing these last nine years? Eating their lunch?  We'd been led to believe its flagship Kiwibuild idea was this amazing, smart and innovative housing policy.  We'd been told it was an answer to the housing crisis for those who couldn't get into their first home.

I was thinking wow, our best architects and planners had come up with something very new and impressive and all on a large scale. I was thinking, think big, but 2018 style. And I assumed KiwiBuild meant just that;  as Housing Minister Phil Twyford said, 100,000 homes would be built.

Now we learn, um no, that's not the case. It's Kiwibuy, that house, your house, any house will do.

Labour has simply thrown its arms up in the air and put up a classified advertisement the size of a house that calls for all houses to be bought and sold as Kiwibuild dwellings. Labour wants the biggest shortcut to success possible.  It wants to buy current homes under construction or off the plans and call them Kiwibuild's own. It's a total hoax.

The Minister of Housing And the Tides

Canute's Courtiers Make a Comeback

Until Reality Drowns Them Out

The present New Zealand government appears to have an acute case of Canutism.  The ancient King Canute went down to the sea shore and commanded the tide not to proceed any further.  But the tide (like time) waits for no man; Canute left humbled and humiliated.

Well, the last bit isn't accurate, according to the historians.  The real story was more amusing--and more sobering.  The honest and humble Christian King Canute became sick to death at the fawning and obsequious lying of his courtiers and attendants.  He decided to give them a reality check.  He asked them if they thought he he was so great he could command the tide to cease ebbing and flowing.  They insisted that the King's greatness and power extended to commanding the tides.  Canute then demanded to go down to the shore to test their wisdom.

The courtiers were left with red faces and indecently exposed.

In our day, we have a different version of Canutism.

Landlords Heading For the Hills

The Certainty of Ignorant Left Ideologues

For the Left (and sadly much of the professed Right) the State is the avatar of deity, if not the deity itself.  If the gummint does something or runs a programme it is axiomatic that State involvement will have a much better outcome than if private individuals or corporations were to do it.  This is a deeply ingrained belief.  It is religiously held.

There are a number of beliefs which buttress this religious mantra.  Firstly, State run and controlled businesses appear to be riskless.  The gummint can enforce the rules and regulations and trading conditions in favour of the State to ensure its success.  Moreover, the gummint is not constrained for money: it can always borrow, and when its credit worthiness runs out, it can then resort to printing money.  Venezuela is an apt contemporary example of this thought pattern running to its logical and practical conclusions.  Destitution and starvation.

Secondly, State run businesses are believed to be more pure or holy.  Private business is inherently immoral.  It allows--nay, requires--people to make profits  This amounts to trafficking in filthy lucre, since (by definition) profits represent gain at the expense of customers.  If the customer or user were charged a "fair" price the provider of the service would be just clearing costs, and no more.  That is what the State (purportedly) does when it goes into business--clears its costs and no more.  In reality, the State layers costs upon costs throughout the activity in question, glorying in waste and inefficiency.

In New Zealand we have an alleged housing crisis.  The new Labour Government has decided to crack down on what it believes are private individuals and businesses taking advantage of people wanting to buy houses.  The Gummint is going to exercise more control over the market so as to force landlords to accept lower profits.  Remember, profit is tantamount to theft.  It is inherently immoral in the Left's mindset.

This, from Eric Frykberg of RadioNZ:

The Times, They Are A-Changin'

The Ground is Shifting

Tony Alexander, the Bank of New Zealand's Chief Economist, has written an open letter to "Millennials" who have been complaining that buying a house in New Zealand is now virtually impossible for younger people entering the work force.

It is a tongue-in-cheek piece, but as is often the case, there is an undercurrent of sober truth in it.

BNZ chief economist Tony Alexander says young people priced out of the market are wrong to point the finger at retirees.  He said there had been a number of structural changes that had altered what New Zealand house prices were worth.

New Zealand was no longer one big farm, he said, and shift of focus to cities had put pressure on their house prices. Another change was the relative return on and cost of property. Interest rates are now much lower than they were up to the 2000s, which affects what people will pay.

"The cost of borrowing to purchase a property has plummeted and because of this structural jump in demand for property, prices have lifted.

Faux Homelessness in New Zealand

One Man's Trash . . . 

Redefining categories to create sensational headlines--and (temporarily) further one's career--are stock in trade for those wanting to make a name for themselves.  In New Zealand, it seems that for some reason a good number of these "wannabes" come out of Otago University and are associated with "health research".  Maybe it's something in the water down there.

The latest example is Dr Kate Amore who has been busy telling us that 41,000 people in New Zealand are homeless.  How does Dr Amore define "homeless"?  So broadly that a university student, living in a swanky hall of residence is regarded as being without a home.

Here is Dr Amore's breakdown of the homeless:

If the homeless population were a hundred people, 70 are staying with extended family or friends in severely crowded houses, 20 are in a motel, boarding house or camping ground, and 10 are living on the street, in cars, or in other improvised dwellings. They all urgently need affordable housing. [Otago University Media Release]

Seventy percent of the "homeless" population are not living on the street, sleeping rough.  They are in houses.  But these houses are not their own: they are living with relatives, boarding with friends, etc. But Dr Amore proclaims that these folk are all living in "severely crowded houses".  How does she know?

Economic Ignorance

National Embarrassment

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.

Long Term Thinking

Inter-Generational Inequity

Here is something you don't see every day.  A local Maori tribe has bought up some state houses in the area of its traditional tribal lands.  It plans to lease them out to tribal members.  Nothing unusual there.  But it is the terms of the lease which are startling.

"Buying land close to Orakei is important to Ngati Whatua Orakei. Our focus is securing land within the tribal boundaries and then using it in the best way to ensure sustainable benefit for the hapu," he said.  The iwi would convert three freehold titles at 38 Takitimu St, 29 Te Arawa St and 11 Ngaio St into leasehold titles and advertise them for sale. 

Leases of 125 years, 150 years or 175 years could be bought, he said.  But ground rent review issues would be avoided because purchases of the leasehold interests in those three properties would be sold with prepaid ground rents. 

Mr Hutchison said such arrangements were relatively rare on suburban residential properties but common overseas.  "There will be no rent reviews throughout the term and the ground leases are prepaid, which we believe removes uncertainly and will make budgeting easier. After 175 years the land can come back to Ngati Whatua Orakei." [NZ Herald]

The first thing that is unusual is the long term view which the tribe is taking of land ownership.  It genuinely believes its newly acquired land is to be held in perpetuity for its descendants.  Ancestral or family land is largely a thing of the past in modern Western economies.  Ngati Whatua is to be commended by thinking in a manner consistent with its tribal ideology.

Making Matters Much Worse

When Solutions are the Problem

One of the reasons Western capitalist societies are struggling is due to a bizarre approach to supply and demand.  We say, "one" of the reasons, for there are legion.  Nonetheless the deliberate skewing of supply and demand is a significant impediment.

Let's consider some of the ways the productive economy is inhibited and made inefficient by inappropriate interference with the buying and selling, investing and producing populace.

The first is a relentless compulsion to restrict the supply of resources useful for constructing and delivering goods and services.  This is largely driven by the notion that natural resources are finite and are running out.  Oil, gas, energy, land, timber, coal, steel, water, etc. are all limited.  Consumption will reduce their supply.  Therefore, it is prudent to restrict their use and application to make them last longer.  But rumours of the disappearance of natural resources are greatly exaggerated.  Remember the shrill, siren calls of the looming, dooming devastation of "peak-oil" about to wreak havoc upon us all.  The Sirens began shrieking in around 2008; "peak-oil" was supposed to hit in 2012.  Now, world oil supply is such that we presently have a glut.  Go figure.    

A second inhibition comes from the various ideologies of Greenism.

Two Very Different Houses

Economic Literacy in Oz, Ignorance in NZ

New Zealand appears to have a strong streak of xenophobia.  It also can be characterised as excelling in economic and commercial ignorance.  These things tend to come out especially during election campaigns, but they are always there, simmering away just beneath the surface, waiting to break out like a bad case of acne.

One traditional cause célébré is residential housing and whether New Zealanders can afford it.  Prices are rocketing up in some locations (Auckland, Christchurch) bringing forth pronouncements of doom.

But attitudes across the ditch appear to be very different.  House prices have ratcheted up in that country as well, particularly in Sydney and Melbourne.  And, more to the point, the  presence of strong Chinese demand is having a significant impact.  In New Zealand, a similar phenomenon has produced xenophobic reactions against Chinese immigration and house-buying.  Not so in Oz--at least not in the Sydney Morning Herald, which is hardly a denizen of right wing, pro-business, free market economics.

Irrational Exuberance

Housing Bubbles and Cool Calculations

We are all aware that kiwis have willingly deluded themselves into thinking that residential housing is a yellow brick road to wealth. Actually, for a long, long time they have been quite right. But it is unsustainable. It is pyrrhic prosperity. Smart folk will be very aware of this and will be planning accordingly.

Now, in these matters timing is always critical. As Keynes once observed, "the market can stay irrational far longer than you can stay solvent". In other words, an investment market or asset may be way, way out of synch with fair value, but a return to reasonable prices may take years, decades, even generations. If you get exposed by betting the family farm or the household silver on the "market" pirouetting nimbly from irrationality to rationality--without considering that it may take decades to happen--you are speculating. Don't complain if the markets fail to perform within your required time frame.

Residential housing investment is a case in point. Let's be clear on what a rational market in residential housing would "look like". In case you missed it, a residential house is, well, a house, a building. And buildings depreciate over time, as does all plant and equipment. Houses eventually need maintenance and repairs. They wear out. They have to be replaced. This means that a ten year old house should be worth less than on the day it was first built. In general terms the land on which the house is built could be expected to appreciate in value over time because there is a finite and limited supply of land. There is only so much of it in NZ. Moreover, land never wears out (unless you are living in an area subject to coastal erosion).

So, a rational housing market should see the land on which the house is built increase in value over time, due to limited supply, while the house built upon the land decrease in value over time. But this is not the experience of New Zealanders in general. They have an expectation that whatever one pays for a house today, it will be worth more in three to five years time. This is a cultural axiom beyond dispute. It is a financial nostrum which only a fool would deny. Consequently, New Zealanders believe that housing is "safe" in financial terms. They are prepared to take considerable financial risks to own it. Even if they have to mortgage up their lives, in the end it will pay off as their house rises in value over time.

But it remains a fools paradise. Inflation--caused by a general increase in the supply of money--obscures the real fall in value of houses over time. A ten percent rise in market value of a house might actually be a five percent decline in real value by the time inflation is taken into account. Inflation is annoying in that it sends the wrong price signals that obscure real value.

But a far more significant factor distorting the housing market in this country, making it an irrational bubble, is the artificial limits upon the supply of housing. It is this which has worked more than any other factor to create a distorted, protected, housing market. The supply of houses has been artificially restrained not by a shortage of timber or other construction materials, but by local and central government restrictions upon house building. The Resource Management Act and local government town plans have restrained the supply of houses, reducing their supply, thereby jacking up prices of existing houses. This in turn has led to the nostrum that houses always rise in value. In the living memory of most people they have.

So, when you bet the family silver on a house you are probably going to be OK. Unless you are the one caught when the bubble bursts. But what would cause the bubble to burst?

A real depression. A really serious economic depression, lasting ten or so years, goes through phases. The first is the rapid contraction due to firms laying off staff and going bankrupt. Unemployment rises, spending falls, and credit contracts. The fall of demand and the turning off of the money-spigots means that prices fall, cash is king, bargains can be found. This is the first phase.

The second phase is the contraction of central and local government. Tax revenues drop sharply; limits upon government borrowing are reached; and government spending cuts begin.

It is at this point that local municipal governments start to wake up and smell the sewage. First up they realise that they have swathes of land which they had bought up in the halcyon days for one grand project or another. It is lying vacant; there is no revenue for the council being generated. Secondly, as indigent people are forced out of their houses, they "inherit" a bunch of houses due to non-payment of local government rates.

It gradually dawns on local bodies that a growing housing stock is a good thing. Querulous greenie voices fade to whimpers. Local bodies become pro-development and a building boom commences. But, every new residential house completed, lowers the value of the existing housing stock. Depreciation--a rational economic force--kicks in. A more sane and stable housing market develops--but one which sees the artificial wealth which people believed they held in ever appreciating residential property ebbs away. This is the third phase of a really serious depression.

Everyone is poorer. The fourth phase is when it dawns on the entire populace that the only way wealth can be created and sustained is to produce marketable goods and services at a profit. In other words, we have to work and earn our way out of economic recession. Then--and only then--a sustainable recovery begins.

In New Zealand, folks can makes lots of money from housing. If you are one of them, just keep reminding yourself that you have been fortunate and that it will not last. Warn your children.

Here's a good rule of thumb. Assume that the life of your current house is fifty years. Then it will be bulldozed and a new one constructed on the site. Look at your original QV statement and subtract the unimproved land value. The residual is the house value. If the house is ten years old, consider it depreciated by 20 percent. In other words the economic value of the house is worth one fifth less than its original sale price, if it is ten years old.

Such calculations will serve to keep you economically rational when you consider the residential housing market.