The worst possible reaction to housing prices

Centre-left governments are funny with their contradictions. When property prices are rising beyond inflation, and people's family homes (and investment properties) are enjoying comfortable capital gains, governments are happy for people to enjoy the fruits of this. Indeed in New Zealand with property rates funding most local government activities, local government enjoys not only the fruits of property revaluations to increase rates, but they increase rates ANYWAY, so that local government revenues grow significantly faster than inflation.

Of course whilst property prices appreciate, there is concern about those unable to afford to buy a home. This is a public policy concern sufficiently that governments intervene in different ways including:
- Providing special schemes taking taxpayers' money to subsidise deposits for first home buyers;
- Using taxpayers' money to subsidise large scale new housing developments and new "eco towns";
- Using taxpayers' money to further inflate the cost of new housing, by building new subsidised rental housing (state/council housing).

Now there is an understandable concern about people being able to have housing, but by taking taxes off of everyone, subsidising people to enter the property market further inflates that market, producing a rather vicious cycle.

So what has the UK government done more recently. Property prices on average across the UK have fallen by around 10% in the last year. This creates problems for those who have 100% mortgages in areas of low forecast growth, so many thousands now have "negative equity" where their mortgages are worth more than their properties. These are part of the credit problem, whereby financial institutions lent money to those who were barely able to sustain buying property, and are now unable to shoulder the capital loss in the short to medium term.

This is painted as a disaster, which it is for those with negative equity, and isn't positive for those relying on property capital gains as an investment. However there is another side to this story.

Those not currently in the market can see an opportunity. With significant price drops, the catchment of people able to buy homes increases - though this is partly relative to the availability of mortgage finance. However, in effect the situation is self correcting. It SHOULD lead to less government involvement in the housing market as it has become affordable.

No. The UK Labour government couldn't let that one go, so what has it done? It is now letting local authorities buy up properties under mortgagee sales, it is also allowing councils to underwrite bad mortgages - in effect is propping up the market using taxpayers' money. The same taxpayers of whom some are suffering from decreasing property values and others who are seeking to buy - they are indirectly subsidising the market. A market where only part of the population benefits from this and many others lose.

It is a massive taxpayer subsidy to property owners, and it is vile and counterproductive for the UK as a whole.

Ross Clark in the Times damns the Brown government's moves saying "why should you want your taxes used to bail out feckless homeowners who borrowed too much during the boom and, worse still, the greedy banks that lent it to them?".

He points out that mortgage lending in the UK has dropped by two-thirds in one year, from £17.2 billion in July 2007 to £4.3 billion in July 2008. So while the market corrects itself, Gordon Brown wants to prop up those with an interest in part of the equation, because he figures the swing voters are in that category. The poor feckless lower income people vote Labour anyway, so screw them.

As Clark concludes:

"To force taxpayers to rebuild a stock of council homes now in a falling market is not just perverse; it would also rank alongside Gordon Brown's sale of gold reserves at the bottom of the gold market in 1999 as one of the most crass cases of public investment ever.

There are few problems so bad that a government cannot make them ten times worse by intervening. The housing market is no exception. Much as it will cause pain to those who bought too late into the dream of home ownership, the only sensible policy is to stand back and let the market find its own level."

The Times editorial today also sums it up:

the most fundamental objection to the housing package is that government has no legitimate function in targeting asset prices. The most direct way to assist first-time buyers is to allow an overvalued market to find its own equilibrium. There is no reason for the Government to seek political salvation by populist appeals to the economic interest of existing homeowners.

Indeed, and in the meantime some may be looking to snap up some good buys!

Labour does good on trade

A free trade agreement with ASEAN is a good step forward, opening up access to relatively close and fast growing markets in South East Asia, and so congrats to Phil Goff for this. Indeed, the pursuit of a liberal open trade agenda is one of the few areas I'll give Labour credit for continuing, as it is a fairly bipartisan activity politically.

Now the Nats can build on this and take it further, as Labour has tended to ignore areas like audio-visual services and the like. I expect only the Greens, NZ First and perhaps the Maori Party will question it, because they share xenophobia about foreign made goods, and the Greens in particular find the idea of consumers and producers interacting voluntarily to be some breach of people's sovereignty!

John Key and Barack Obama

Yes in so many ways...

However I love Gman's comment "In what way is John Key like Barack Obama? Is it the lack of experience, the lack of policies or the lack of substance?"

Why do I not want Labour to be re-elected?

Labour presents a vision of more government, more government subsidies, more middle class welfare and an uncomfortable level of statism across many aspects of everyday life and business. The failure of state health and education to deliver the expectations of the public is not something Labour has an answer to, beyond spending more money, which suits the interest groups that it gets succour from, such as the teaching and nurses unions. However, most disconcerting of all is Labour’s underlying message of class warfare.

You can be successful and quite wealthy under Labour, but you should be fitting in with its “visions” and “strategies” and you better be giving a lot back, because you owe it. Labour has an underlying suspicion of those “too” financially successful, as if they got there off the back of the workers, whereas it has a generous view of those who have failed. Labour sees those closer to the bottom as always deserving of more money, more assistance and that their circumstances are “no fault of their own”. It is the leftover legacy of socialism. The belief that, deep down, people shouldn’t be allowed to fail, and the successful shouldn’t be allowed to “get away with it”. Most of all it is the belief that the state is a force of good and it can intervene and do more good, most of the time.

I see the state as necessary to protect rights, not to grant privileges and take money from some and give to others (redistribution). I find the notion that the successful owe everyone else to be rather vile, but most of all I find the culture that says that everyone else owes you something, and you owe everyone else something to be most insidious.

Now the reasons to remove Labour from power are quite overwhelming. For me it is:

- The arrogant belief of the Labour Party that it knows best how to spend a significant proportion of people’s money, and its lack of accountability for wasting it. Taxpayers’ money is the government’s money and there is little appreciation of where it came from;

- The chilling view of Helen Clark that “the state is sovereign” showing scant regard for individual freedom;

- The culture of envy and sneering hatred for “the rich” and successful, particularly in business, that comes through in the general Labour attitude to “rich pricks” and the like;

- The almost complete lack of business experience or economic expertise in the Labour caucus, which is dominated by ex. teachers, union officials and public servants. That ISN’T representative of New Zealand (despite what Idiot Savant thinks);

- The sclerotic paucity of accountability and consumer driven reform of the education system under Labour, which is designed to serve what bureaucrats and the teaching unions think it best for education, not parents. Perhaps the greatest scope to open up innovation and cultural change in New Zealand would be in opening up education to be driven by users and providers in a virtuous circle seeking better performance from children;

- The insidious willingness of Labour to consider blunt Orwellian processes to monitor the lives of all children, regardless of their parents’ performance, as a response to the chronic child neglect and abuse by an underclass of barely functional adults;

- The lack of regard for private property rights whether it be homeowners on the one hand or large businesses on the other, or indeed the lack of willingness to use private property rights to deal with issues such as the foreshore and seabed;

- Complete emptiness of courage and ideas to manage the unmanageable burden of the public health system whereby demand, supply and incentives are highly perverse and will continue to deliver below expectations;

- Its cheerful willingness to increase the scope and size of the welfare state to incorporate middle class families, to put them in a cycle of dependency of government for a portion of their income, rather than deliver tax cuts;

- Labour’s almost religious willingness to sign up New Zealand to an Emissions Trading System and commitments to address CO2 emissions without there being any substantive evidence that the benefits will outweigh the costs;

- The ongoing willingness to pour hundreds of millions of dollars of taxpayers’ money bailing out businesses that are failing in part because of its own unwillingness to accept foreign investment (Air NZ), or because of a quasi-religious obsession with a particular industry (Kiwirail);

- A similar willingness to decimate the private property rights of a major company (Telecom) whilst complaining about that company’s level of investment in new infrastructure;

- Cheeringly developing endless visions, strategies and statements about various sectors of business and communities, as if nothing should be left to people’s own choice, spontaneous decisions and dynamism. Labour does not perceive that it doesn’t have a role in just about everything – whether it be aging, what you eat, what you watch on TV, how you travel, what entertainment you consume, how to dispose of waste.

Is that enough?

TelstraClear damns National's Think Big on telecoms

"political opportunism and a lot of hype",

"What we are seeing is a series of questionable studies and hype"

"At the moment we don't believe that putting fibre into every home is economic or necessary."

Word from the Telstra Clear Chief Executive Alan Freeth, according to the NZ Herald, and given Telstra Clear actually put a hybrid fibre-coax network to the kerb of nearly every home in Wellington, Christchurch, the Hutt Valley and Kapiti Coast, he might know a bit more than your average politician. You see his business is about selling broadband to customers, and he thinks National has got it badly wrong.

He suggests that many homes will just download more movies and porn, rather than become "more productive". Of course, the simple point is that subsidising very fast broadband is subsidising a lot of entertainment. Something the advocates ignore.

I asked where is the demand in April. Why can't those who want broadband pay for it? As Freeth is quoted saying, what good is fibre to every home in Hokitika? Indeed, why should a business that benefits enormously from high speed broadband be subsidised by one that isn't, or a pensioner, or anyone else?

I called it Think Big.

It is headline grabbing, it ignores the risks that government "investment" brings, it ignores the ethical and economic problems of forcing people to pay for something they otherwise wouldn't pay for, and may not even benefit from. It is taking money from people who may otherwise invest it in businesses or their families for what they see as greater benefit.

Labour isn't much better though, but isn't it about time that all of you who don't want to be forced to pay for this stood up and said no? Or are there far more of you who can't wait for everyone else to subsidise your movie, music and porn downloads? Or you are all running enterprising net based businesses that need subsidies right?