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  • Robert MacCulloch

Is it House Price inflation that is Out-of-control, or the House Price inflation Blame-Game?

Today NZ finds itself in the midst of a comedy show with an economics theme. Earlier last week, an assortment of commentators, including a former National Party Minister of Finance, jumped on the Reserve Bank of NZ and blamed high house prices on low interest rates and Quantitative Easing. The Governor responded by saying that he was innocent - the problem was actually politicians who lacked "appetites for accepting policy recommendations".


Today the Prime Minister is in the headlines for turning the blame onto you and me - apparently for blocking the necessary reforms. She is quoted by TVNZ as saying "I would say that actually the appetite for some of these policies also needs to come from the public ... We've tried three times now to do things that specifically sit in that taxation category and there hasn't been wide support for that". She seems to be inferring that a capital gains tax would have helped solve the problem but there wasn't support for it from we, the people.


Since everyone is heatedly blaming everyone else, lets join in (!) The two people who are probably MOST to blame for housing affordability problems are former PM John Key and former Finance Minister Bill English. And they seem to have escaped completely unscathed in this debate (!) That is, the root cause of house price inflation in Auckland is the ramp up in the population of NZ by around 1 million people, from 4 to 5 million, over the past 17 years.


The Resource Management Act (RMA) is not to blame, in the sense that it has been in place for over quarter of a century, having been passed in 1991 by a National government. It was largely designed by Deputy PM Geoffrey Palmer under the previous Labour government. In other words, to the extent that regulations have made the process of building houses slow and expensive, little has changed. What has changed is the dramatic increase in numbers of people needing a house over the past decade.


It was John Key and Bill English who oversaw the huge rise in population but did next to nothing to accommodate the extra numbers. It's very strange how the media are running headlines blaming high house prices on you, me, the cat next door, the RMA, the Reserve Bank Governor and all and sundry and oddly not focusing on the Chief Suspects.


For sources, see:

https://www.newshub.co.nz/home/politics/2020/11/jacinda-ardern-partly-blames-new-zealand-public-for-housing-crisis-chloe-swarbrick-reacts-with-scathing-emoji.html


https://www.nzherald.co.nz/business/steven-joyce-focus-on-growth-not-the-property-bubble/LYWRKHDDPAFPBQ6G4XLK6SUQAQ/