A house of pain

March 22, 2008


As home ownership slides further and further from many Nelsonians' reach, fears are growing that the region's social fabric is being irretrievably damaged. Geoff Collett reports on the search for solutions to what is emerging as Nelson's No 1 concern. --------------------
Another weekend, another Sunday newspaper headline: "On a middle income? This is all you can afford . . . Prices still 30 percent too high for most."
Actually, you don't even need to wait until Sunday, or go any further than your Nelson Mail, for a fix of real estate doom: "More bad news for home buyers." Or, "Housing cost 'worst in years' ".
So, housing is unaffordable. As unaffordable as it has been in this country's modern history, and right here in Nelson, you can experience it at its starkest.
Here's how the Government officials who briefed the Cabinet recently put it: "A return to 'house price to household income' ratios of close to their historical average . . . would either require household disposable income to increase 80 percent or house prices to fall by over 40 percent."
(Which, barring miracles or economic chaos, ain't going to happen any time soon.)
Here's how the statistics put it: between 1986 and 2006, the proportion of owner- occupied houses in Nelson city fell from 79.6 percent - the highest in the country - to 68.6 percent, the lowest in the South Island. The Centre for Housing Research predicts that by 2016, the rate will be down to 62.7 percent.
But we know all that. For years now - certainly for the years since the great house price surge of 2002-2004 and beyond - we've read the stories of struggling young 20 and 30-somethings, heard about the families who have moved out of town so they can afford to own a home, the would-be Nelsonians who have walked away from job offers after having a sniff around the house market, the gloomy predictions of a dramatic, inexorable slide in home ownership having a dramatic, inexorable effect on the fabric of our neighbourhoods.
The real question is, surely: what is anyone going to do about it? Or perhaps more realistically: what can anyone do about it? Isn't this problem bigger than any of us? And if housing unaffordability takes a long-term hold, what sort of community will that leave us? Have we already created a new generation of haves and have-nots, the former safe in their five- bedroom, manicured suburban palaces, the latter in neglected, unloved neighbourhoods of transient rentals with no social connections or economic stake in the place where they live?
The politicians
It would be unduly cynical to say that with an election in the offing, housing affordability has vaulted up the political agenda. Credit where it's due - the Government has been playing around with various ideas for years now, but with limited success at best. It has set up funds and loans, plus used KiwiSaver and Working For Families to offer home-finance sweeteners.
Lately it has become more aggressive. When Helen Clark redoubled her efforts to push her Government's sliding ratings back up at the start of the year, measures to use state muscle to pump new "affordable" homes into the market were high on her to-do list.
In Nelson, the issue has been given an election-year edge thanks to an added twist in the traditional Labour vs National electorate contest. Labour has wheeled in a big gun to try to blow Nick Smith out of his adopted hometown - Maryan Street, the Minister of Housing, who besides wanting to be the next MP for Nelson, is determined to oversee some far-reaching changes in the way the Government operates in the housing sector.
Housing affordability, she says "is probably the single-biggest priority for me . . . everything that I'm considering at the moment (as minister) revolves around housing affordability".
But Smith didn't get where he is today by not recognising the hot-button issues among his voters, then immersing himself in them to the point where he can dominate the local debate.
He rattles through his reading of the situation. Constituency business: housing made up 1 to 2 percent of all the issues the local MP was dealing with in the 1990s, but "20 to 25 percent" today.
The business sector: he quotes Sealord, Nelson Pine Industries, Southpine, Carter Holt Harvey and Helicopters New Zealand as all complaining about the difficulties they are having in attracting staff who can afford to move to Nelson.
The social fabric: declining numbers of children living in certain neighbourhoods, such as central Nelson, as families are priced out.
There is a view that a degree of myth- making is going on around the home affordability debate - that first-home ownership has always demanded a substantial element of sacrifice, and nothing much has changed in that sense. But the National and Labour politicians are in agreement that to try to diminish the seriousness of the housing squeeze is foolish.
As Nick Smith puts it, "the straight statistics show that today for a young couple to get a home is more difficult than it has been for at least two generations. If you look at incomes relative to house prices, they're the worst they have been for a century."
The rival politicians part ways shortly after that. Smith's hobby-horse - and he needs minimal encouragement to work it up to a full gallop - is the costs imposed on the property development and house building industry by the Resource Management Act and Building Act. He can talk for hours about the examples and evidence of damage the twin demons are wreaking. Chuck in soaring interest rates and high taxes, and mix it up with the international property boom, and here we are.
Street, on the other hand, points to the global forces at play in the long-running (but now collapsing) property boom.
"If New Zealand was on its own in this, I would be looking for someone to blame. But we're not on our own."
Street is unashamed in her interventionist philosophies and the degree of intervention she is keen to embrace could be breathtaking: the Government, working with councils, housing trusts, or with private developers, using whatever muscle it can bring to bear (and probably its biggest is its land holdings), would direct the building industry towards more "affordable" homes. Locally, she is enthusiastic about the opportunities presented in a major residential-commercial development in Richmond's Lower Queen St.
If it sounds unlikely - a Government successfully directing a market how to behave - Street isn't hearing the nay-saying.
"Scale" is what she talks about - getting thousands of relatively low-cost houses built; offering shared equity (so the state or some other benevolent agency puts up some cash to help the home-buyer in and maintains a share of the property); attaching conditions to affordable-house titles so that future buyers will have to accept that they can only ever sell them for a marginal gain tied to something like wage adjustments.
The council official
Tasman District Council policy manager Steve Markham quickly dispels any wishful thinking that there may be only one or two dimensions to this particular challenge. As he offers his assessment, he ticks off points of history; demographics, economics, social forces, market dynamics, environmental pressures, town planning, and probably a few others that slipped past in the telling. The wider point is, everything affects everything else, but nothing lines up tidily.
So, to keep things moderately simple, consider that we have a property development industry which says its customers typically want large-sized, high capital- value properties, so that is what they shall get.
We have a fast-growing and fast-ageing population (Tasman's number of over-65s is expected to increase a staggering 144 percent in the 25 years to 2026), including a healthy proportion of seniors who will be coming here cashed up, looking for a new, easy-care place in the sun.
We have had rapid inward migration dominated by over-45s - baby boomers - many with good money to spend on property.
We have at best uncertainty, and more likely significant insecurity around future energy supply, especially transport fuel, which could have serious effects on the cost of commuting.
We have limited and expensive land, some of which is needed for food production, and much of which is prone to natural hazards.
We have huge infrastructure burdens, exacerbated by the need to build pipes and roads to far-flung, thinly-spread settlements.
We have planning wonks who enthuse about infill housing to relieve the pressure on land, and city-dwellers who regard with dismay some dreadful past attempts at infill.
And we have an economy that has been geared for years around a low-wage engineroom, while a turbocharged real estate market has vanished off into the distance.
If it sounds head-spinning, it at least starts to explain why, as Markham puts it, "there will be on-going severe challenges to improve the affordability of houses given all the drivers that are making houses less affordable . . . (and) despite all the measures the Government and council can take to encourage relative affordability. They can only do that at the margins."
The property investor
Glenn Morris has a pithier way of summing up the many and conflicted elements: "Any fool knows it's not simple."
Morris is a Nelson property manager and secretary for the local property investors' association, which has about 460 people on its mailing list and represents many of the owners of the 8000 rental properties in the Nelson urban area.
Among likely culprits to blame for the affordability crisis, the fashion for property investment is an obvious choice. The stereotype is of the rich baby-boomer snapping up houses, pricing them out of the hands of struggling young families, then renting them out to the same disillusioned strugglers.
Morris knows the criticism, but won't wear it. There is too much emphasis on such things, he argues. He identifies two more significant forces: the Government, and the nature of today's first-home buyers.
The former, he argues, simply distorts things by attempting futile interventions. The private sector will quickly factor in measures the state may take to try to give first-home buyers a leg-up.
(Maryan Street concedes that such attempts to help the demand side of the demand-supply equation for first-home buyers have been frustrated because the developers and investors "simply see us coming".)
And Morris is one prepared to question the widely held assumption that home ownership is becoming an impossible dream, wondering if other factors aren't getting enough attention.
"People don't want to save; they don't want to commit for the future; they don't want to commit to a relationship; they don't want to commit to a long-term job. They want instant gratification; they don't want to save to buy a house, they want to borrow it all; they don't want to join their sports clubs or their Rotary clubs or their churches.
"Housing is just one of these many facets of our society."
The positive thinkers
Kenn Butler argues that there is another side of the home affordability debate we are not hearing enough of: the young people who are getting on with home ownership despite the odds, taking advantage of such factors as the stable jobs and wages market.
A business and insurance consultant, and former president of the region's chamber of commerce, Butler helps to present regular seminars for would-be home-buyers, to introduce them to some of the realities of owning a house. The seminars are a Government- sponsored initiative run through the Business Development Company in Nelson and Marlborough.
The company says that about 20 percent of the 160-odd people to complete one of its seminars have gone on to buy a house - not that it is focused on pushing people into ownership, both Butler and BDC manager Sharon Crone hasten to point out. There are people who can't and shouldn't enter the market. But not everybody should be swayed by the regular headlines that home ownership is becoming the preserve of the wealthy.
Butler laments the culture of instant gratification and "mediocrity" he sees as convincing renters that their fate is to remain thus.
Matt Goodger and partner Melinda Currie are the sorts Butler and the BDC would prefer to offer up as role models. The two 24-year-olds did one of the courses last year and became ambitious to own. Currie admits to being gloomy about their early prospects, particularly when she held her checklist against the market - some land, three bedrooms, good space, roomy garage. They discovered that existed in a different universe.
They got knocked back on their first bid for finance and kept on renting.
Less than a year on, and they have their own home: modest for sure (a two- bedroom semi-detached unit in Stoke), but better than they might have done, and their name is on the title. In their favour: promotions and pay-rises at work; a willingness to lower their sights; a bit more wisdom about home-buying from the course.
They shopped around, saw the bad and the ugly before settling on the good. It cost $273,000; their combined income is about $80,000. They seem unfazed that they have paid for it with a 100 percent loan from the bank.
"I don't think home-ownership is out of reach for younger people, " says Currie. Their best advice is to do your own research.
"Don't listen to media speculation. Look into it for yourself."
The market
But if anything is pivotal to the affordability conundrum, it is "the market". Maryan Street may want to lead it by the nose, Nick Smith may want to chum up to it, but it's its own beast - unpredictable, unsentimental and, if it has its way, unyielding except to its own forces. It is also faceless; it would be facile to try to personify the thing.
Still, there are those forced to confront its realities every day, especially the big house-building and property development companies.
David Orange, of Orange Homes, is one such in Nelson. He could not front for a pre-arranged interview, so his comments come via a spokesman who doesn't want to be named. Orange, through his spokesman professes a willingness to help out if local or central governments comes up with ways to help the building industry meet some otherwise unsated demand. His company has the experience and expertise, he points out. But the underlying message is clear: if the formula doesn't work for the private sector, the private sector won't be interested.
Orange boils the issue down to its purest constituents, something which is too easily lost sight of: that home affordability is no more than a function of "outgoings to income". Stuck in the home affordability trap? Easy answer _ earn more, or rent.
But of course, things are never so simple. Either solution cuts to the heart of a deeper harsh reality of life in Nelson.
Anyone who has been here for more than 10 minutes will have heard about the "sunshine wages" theory. It is almost a point of pride with some, that traditionally we have all been so grateful to be here in sunny Nelson that we'll take a pay cut for the privilege. Of those interviewed, only Nick Smith rallies much of a defence for it: that it has been integral to many businesses establishing here historically, offering a key point of difference between Nelson and, say, Auckland.
Certainly, it has aided businesses to be able to escape paying competitive wages. Certainly, the region is founded on blue- collar labour.
The difficulty is, as the world has shrunk, as global pressures and opportunities have surged into Nelson and every other corner of the globe, below-par wages suddenly make for a below-par lifestyle.
So is renting really that bad? Those interviewed for this article argue with varying degrees of conviction that it's not.
But the truth is, enormous snobbery and suspicion surrounds renting. It's not the aspiration of typical New Zealanders, and it's even less of an aspiration of typical New Zealand home-owners to have the house next door converted to a rental, because people fear that renters don't care, that they are disenfranchised from their neighbourhoods, even from their own backyards in some cases.
But home affordability means that the number of renters must be rising, by as much as a third on simple trends.
Even Maryan Street - who certainly doesn't have it in for renters - acknowledges the vital social role of home ownership.
"At the highest level I'm concerned that if we continue to build a society which has an increasing erosion of home- ownership, we have a less-invested society . . . The stability of communities, the safety of communities and the harmony of communities are all qualitatively improved by home-ownership. I don't think there is any evidence to the contrary."
Finally for now, one more bit of bad news if you are one of those who has recently decided to chuck in the towel on the house-hunting caper and stick with renting someone else's place.
The latest speculation is that as house prices slide, landlords are no longer going to be able to rely on capital gains as their primary source of profit. They'll be looking again at rents, wanting more of their return to come directly from their tenants.
Just read the headlines in your Sunday paper. Like the one last weekend: "Lifetime of renting a recipe for poverty."
The company says that about 20 percent of the 160-odd people to complete one of its seminars have gone on to buy a house - not that it is focused on pushing people into ownership, both Butler and BDC manager Sharon Crone hasten to point out. There are people who can't and shouldn't enter the market. But not everybody should be swayed by the regular headlines that home ownership is becoming the preserve of the wealthy.
Butler laments the culture of instant gratification and "mediocrity" he sees as convincing renters that their fate is to remain thus.
Matt Goodger and partner Melinda Currie are the sorts Butler and the BDC would prefer to offer up as role models. The two 24-year-olds did one of the courses last year and became ambitious to own. Currie admits to being gloomy about their early prospects, particularly when she held her checklist against the market - some land, three bedrooms, good space, roomy garage. They discovered that existed in a different universe.
They got knocked back on their first bid for finance and kept on renting.
Less than a year on, and they have their own home: modest for sure (a two-bedroom semi- detached unit in Stoke), but better than they might have done, and their name is on the title. In their favour: promotions and pay- rises at work; a willingness to lower their sights; a bit more wisdom about home- buying from the course.
They shopped around, saw the bad and the ugly before settling on the good. It cost $273,000; their combined income is about $80,000. They seem unfazed that they have paid for it with a 100 percent loan from the bank.
"I don't think home- ownership is out of reach for younger people, " says Currie. Their best advice is to do your own research.
"Don't listen to media speculation. Look into it for yourself."
The market
But if anything is pivotal to the affordability conundrum, it is "the market". Maryan Street may want to lead it by the nose, Nick Smith may want to chum up to it, but it's its own beast - unpredictable, unsentimental and, if it has its way, unyielding except to its own forces. It is also faceless; it would be facile to try to personify the thing.
Still, there are those forced to confront its realities every day, especially the big house- building and property development companies.
David Orange, of Orange Homes, is one such in Nelson. He could not front for a pre- arranged interview, so his comments come via a spokesman who doesn't want to be named. Orange, through his spokesman professes a willingness to help out if local or central governments comes up with ways to help the building industry meet some otherwise unsated demand. His company has the experience and expertise, he points out. But the underlying message is clear: if the formula doesn't work for the private sector, the private sector won't be interested.
Orange boils the issue down to its purest constituents, something which is too easily lost sight of: that home affordability is no more than a function of "outgoings to income". Stuck in the home affordability trap? Easy answer _ earn more, or rent.
But of course, things are never so simple. Either solution cuts to the heart of a deeper harsh reality of life in Nelson.
Anyone who has been here for more than 10 minutes will have heard about the "sunshine wages" theory. It is almost a point of pride with some, that traditionally we have all been so grateful to be here in sunny Nelson that we'll take a pay cut for the privilege. Of those interviewed, only Nick Smith rallies much of a defence for it: that it has been integral to many businesses establishing here historically, offering a key point of difference between Nelson and, say, Auckland.
Certainly, it has aided businesses to be able to escape paying competitive wages. Certainly, the region is founded on blue-collar labour.
The difficulty is, as the world has shrunk, as global pressures and opportunities have surged into Nelson and every other corner of the globe, below-par wages suddenly make for a below-par lifestyle.
So is renting really that bad? Those interviewed for this article argue with varying degrees of conviction that it's not.
But the truth is, enormous snobbery and suspicion surrounds renting. It's not the aspiration of typical New Zealanders, and it's even less of an aspiration of typical New Zealand home-owners to have the house next door converted to a rental, because people fear that renters don't care, that they are disenfranchised from their neighbourhoods, even from their own backyards in some cases.
But home affordability means that the number of renters must be rising, by as much as a third on simple trends.
Even Maryan Street - who certainly doesn't have it in for renters - acknowledges the vital social role of home ownership.
"At the highest level I'm concerned that if we continue to build a society which has an increasing erosion of home-ownership, we have a less-invested society . . . The stability of communities, the safety of communities and the harmony of communities are all qualitatively improved by home- ownership. I don't think there is any evidence to the contrary."
Finally for now, one more bit of bad news if you are one of those who has recently decided to chuck in the towel on the house-hunting caper and stick with renting someone else's place.
The latest speculation is that as house prices slide, landlords are no longer going to be able to rely on capital gains as their primary source of profit. They'll be looking again at rents, wanting more of their return to come directly from their tenants.
Just read the headlines in your Sunday paper. Like the one last weekend: "Lifetime of renting a recipe for poverty." Nelson Mail