Housing Boom Is Global Not Local – Fixing Our Housing Boom Demands A Broader Perspective
There are vocal calls for government intervention in the booming housing market.
What is deeply troubling is not the creative, albeit often futile ideas that are driving government intervention in the pricing of residential housing. The deeply troubling aspect is that many people are calling for intervention in a market dynamic that is neither regionally influenced, nor driven by existing government policies.
The residential housing boom we see is the result of macro-economic dynamics influenced at a global level and perpetuated by the overall monetary system.
Demands that Labour “fix the residential housing price boom” occur when ignoring world-wide trends and monetary dynamics that are positioning the housing market as one of the few remaining stable investment vehicles.
There is an ongoing, substantive and particularly long lived residential housing boom occurring globally.
This global boom in residential investments
is specifically targeted within STABLE ECONOMIES that have
grounded monetary policies where long term investment growth
remains tenable -- Unlike much of the rest of the
Therefore, it is not a surprise that some European nations, north America, and some Asia-Pacific nations are seeing a particularly high intensity housing boom.
In March the Wall Street Journal reported on a housing boom that was across the globe. The point the authors Mike Cherney and Patricia Kowsmann made in their article “House Prices Are Inflating Around the World” was absolutely essential: “Pandemic-related stimulus, ultralow rates and changes in buyer behavior are turbocharging markets from Europe to Asia.”
This point was raised again by major economists in April, with poignant Economist article by Bicester and Rhinebeck declaring: “House prices in the rich world are booming.”
Furthermore in May, Reuters reported in the concise article “Pandemic surge in European house prices raises fears of new bubble,” that a set of specific stable economies like Sweden and Germany were seeing unprecedented housing booms.
In the article, the HOUSING SUPPLY was pointed to as a fundamental stabilising mechanism for run-away economies that had been over heated by the pandemic responses and inappropriately low mortgage levels.
There is nothing particularly unique nor surprising regarding the New Zealand housing boom.
There is nothing particularly unique nor
regarding the New Zealand housing boom.
Interest rates were held too low for too long creating very strong incentives, combined with a pandemic that both overshadowed and blurred the lines between stabilising growth and over-stimulus, on top of the global monetary weakness driven by trade wars and inflationary stimulus printing.
The current New Zealand housing market boom is driven by much more profound, underlying global macro-economic instigators that require New Zealand government to use broad and holistic approaches.
Fixation on house prices, encouragement of punitive legislation around that explicitly market, and implementing this in the current macro-economic environment can have substantively negative consequences related to Kiwi investments, household income, and overall stability of the New Zealand economy.
Instead, as many of the economists have already proposed, the boom must be taken in the context of the GLOBAL FINANCIAL MARKETS and only then proper and stabilising decisions should be made. Key aspects include:
1. PREPARE EVERYONE FOR RATE RISES - The government leaders can take steps for immediate preparation and incentivised programmes to help offset and stabilise mortgage debt as rates rise, ensuring we do not see sudden mortgage shocks.
2. LEADERS CAN HELP PROMOTE BETTER BANKING PRACTICES - Banks offer mortgages to investors because their system, especially driven by larger international banking processes, encourage money to flow to where money already exists. New home buyers, young families getting started, hardworking single people are very low on the ranking for bank lending. Leaders can incentivise loan policies to some degree and dictate how well such incentives work for first home buyers and younger investors.
3. LEADERS CAN HELP PROMOTE YOUNG TO SAVE - Simple tax policies can help, as well as creating new incentives specifically to allow young Kiwi’s to save money, encourage longer term investment strategies and have options other than housing for wealth building. Instead, most young working people are watching as any saved wealth devalues quickly due to the inflationary reality of the current macro-economic conditions.
4. LEADERS CAN DIMINISH ECONOMIC RHETORIC THAT MAY COLLAPSE THE NZ ECONOMY - Vocal proponents of government intervention demand that leaders step in and do something to control a housing market instead of making demands around other broader market incentives that will work. For instance, these intervention proponents often fail to demand incentives for higher wages, even though wages are a key aspect of wealth disparity.
5. WAGE DISPARITY AND JOB SECURITY ARE FUNDAMENTAL CAUSES OF SOCIAL DIVIDE - Ironically, it is the government employment itself that regularly fails to create environment and processes to either retain hard working staff or pay them market salaries. Now is probably an inappropriate time to encourage government pay freezes where the economic disparity is growing so quickly. For now many government wages remain abysmally low compared to overall cost of living, and the government is notorious for employment contracts that do not meet its own rhetoric.
6. ENCOURAGING OTHER SAVINGS METHODS – the current policies do nothing to encourage savings, and the banks have all but completely eradicated savings plans as a part of their focus. In this unique environment the leadership can create tax and other incentives to promote other forms of savings and thus investment demand. It may be a bit late to the gate, but such incentives should exist otherwise single focused investment vehicles become the fixation of most investors.
7. INCREASE HOUSING SUPPLY BY INCREASING INCENTIVES TO BUILD - Finally, an overt method by which the government can and should intervene is to incentivise housing supply. The housing stock remains low as costs for building are increasing, and market instability raises risks for developers. Government leadership should create positive incentives to build more houses that are designed and developed to be affordable at lower mortgage debt rates and require lower initial deposit levels.
This unique housing boom is global in scope, and can only be tempered when our leaders focus on overall macro-economic policies that create stability. Unfortunately, a fixation with housing prices and short-term focused policies will increasingly encourage more intensive upheaval in already tenuous market conditions.
Mark Rais is the creator of the think tank Trend Analysis Network, writer for the technology and science industry and volunteer senior editor for an on-line magazine. He has published several books and written numerous articles on the topics of macro-economics, technology and society.