New Zealand: Banking must be a public utility to solve the housing crisis


31 percent of households spent 30 percent or more of their income on housing costs. This number was only 11% in the late 1980s.

For renters, 28% spend 40% or more of income on housing. Average rents have increased from $400 to $580 a week since 2008.

Over the last decade, average housing costs increased by 43%. This was similar to the growth of average incomes but the poorest housing incomes only increased by 29%.

The has been a decline in floating mortgage rates from 10% to 3% at the same time as median house prices have doubled.

Mortgage debt is now at $266 billion (May 2019) – up 38% in the last five years. Overall household debt has gone from the equivalent of 50% of GDP in the late 1970s to over 160% today. Household debt to income ratios is also extremely high and dangerous at 165% double the level of the mid-1990s.

Households with mortgages have on average three times their disposable income in debt. But 40% of recent borrowers have more than five times their income in debt.

The so-called housing market has very little to do with the laws around supply and demand. It is almost entirely a question of the banking system’s ability to create and sell mortgages and make enormous profits doing so.

A period of declining interest rates has allowed the New Zealand banks to seduce people into believing that this will remain the situation forever and all we have to worry about is servicing the debt not the amount of debt.

A significant economic shock, like we are currently experiencing, will put incomes at risk and interest rates could easily start moving up as a consequence of the increased risk attached to the borrowing.

This is perhaps easier to see when looking at bank lending in another entirely unrelated sphere – New York Taxi licenses. The city had a cap on licenses of around 13,500. The cap made the license a tradeable commodity that drivers, fleet owners and nowadays hedge funds can buy and sell.

A New York Times article headed ‘They Were Conned’: How reckless Loans Devastated a Generation of Taxi Drivers explains how banks predatory lending helped drive license prices up to $1 million each by 2014 and then the prices collapsed and hundreds of drivers were ruined and bankrupted.

This heartbreaking story is a real risk of being rerun in this country because of excessive bank lending in pursuit of profit. With land, there is always a limit to the amount available. Land can be left idle, but It also can also be used to earn income – from housing, agriculture, factories or warehouses. The banks job is to ensure that any increase in income or potential income over time gets capitalised in the price for that property that can then be demanded when sold. The bank’s job is to encourage a buyer to get a loan or mortgage that can be used to purchase that income stream. 

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