OPINION: Over the past few weeks many of us have been caught up in the spectacle of the recent US Presidential election – or, more precisely, the sideshow that has been playing out in its wake. A convincing win for the challenger, a President who refuses to concede defeat and a heavily partisan media that refuses to let the facts get in the way of a good story. All that’s been missing is the popcorn.
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For the benefit of the handful of you who haven’t been watching — the Trump campaign lost several of the key states it needed to win in order to retain the presidency. But instead of conceding defeat, Trump and his supporters have claimed that massive voter fraud took place in these states — a claim for which they have no evidence and in spite of the fact that Republican governors are testifying that no such fraud took place.
Despite this, large numbers of US Republican voters were buying into the claims at the time of writing — partly because Trump had managed to sow a seed of doubt in the conduct of the election but mostly because they simply wanted it to be true.
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Of course, the same thing would never happen here, right? Kiwis would never buy into a position that was demonstrably untrue and support a comfortable (but dishonest) narrative rather than face an obvious but uncomfortable truth?
Of course we would — and we have. In fact, we’ve been doing it for decades. But instead of burying our head in the sand about election results, as Trump has done, we do it in our approach to the property market — or, more specifically, in the lies that we tell ourselves about what causes house prices to go up and what we should do to fix this ”problem”.
For almost 40 years our approach to house price inflation has been every bit as childish and anti-factual as that taken by Trump to his own defeat. Recent examples include the introduction of the Foreign Buyers Ban, implemented despite compelling evidence that foreign buyers weren’t the cause of raising house prices; moves to curb immigration, despite evidence that immigrants and returning Kiwis weren’t the reason house prices were rising; and the Loan-to-Value-ratio restrictions which the Reserve Bank introduced in 2013 amid claims that they would bring down house prices — an objective they very clearly didn’t achieve.
When it became obvious that the restrictions were having absolutely no effect on house prices, the Reserve Bank then claimed their “real” purpose was to ensure the stability of the property market. It’s the equivalent of me telling you that I’ve kept you safe while you’ve been reading this article because, if you hadn’t been reading it, you might have gone outside and had a terrible accident. It’s complete nonsense but impossible to empirically disprove.
Earlier this year the Reserve Bank appeared to have seen sense and dropped these restrictions but with the renewed strength of the post-Covid property market they’re now dusting them off and have announced that they will ”consult” on the possibility of reintroducing them next year to cool the market (or so goes the claim). On the back of this, one bank has even already rushed in to reintroduce them, early, in a gratuitous act of uncritical corporate virtue signalling.
So, let me save the Reserve Bank some time by outlining exactly what will happen if they reintroduce these pernicious rules to the market. Firstly, they won’t make a jot of difference to house price inflation. Prices will continue to increase unabated. Secondly, they won’t impact on investors and existing owner occupiers. These groups will continue to see the value of their properties increase to a point where minimum deposit requirements will be little more than an irritating distraction. And thirdly, as they did last time, the LVR restrictions will once again make home ownership an impossible dream to anyone wanting to buy a first home unless they have a very large cash deposit or parents willing to help them.
The Auckland market is in the early stages of its next boom and prices there will almost certainly double over the next seven to 10 years. Reintroducing the LVR rules will make absolutely no difference.
