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How we all stoke the housing fire

Obsessing over house prices skews the market, and may be keeping solutions out of reach. reports.

Keith Lynch

House prices. Imagine we lived in a world where we didn’t talk about them, where they didn’t dominate the news cycle, and where politicians didn’t ask, or get asked, about them all the time.

This is, of course, a fantasy. New Zealand is probably more likely to stop talking about the weather.

What we may sometimes forget – or fail to realise – is all of this house price chatter is almost certainly having an impact on the market itself. As one expert puts it, communications about house prices may well be an engine driving the market, rather than a window shining a light on it.

So how does this work? Does how we speak about house prices actually warp our thinking?

What is Performative Power?

A complicated-sounding concept that’s actually rather simple. Language doesn’t only describe the world, it has the power to change it.

There are literally millions of examples. This one is a goodie. After a politician misspoke at a press conference in November 1989, a German journalist went on TV and said a particular set of gates were open. No biggie, eh? Well, these gates were at the Berlin Wall, and he was implying that people on the eastern side of the Iron Curtain were all free to leave.

It really wasn’t that simple, but after he said it all hell broke loose. The mix-up led to thousands of people taking to the streets and ultimately led to the fall of the wall.

Words have power.

The concept of performative power has been studied in dozens of fields – from gender to economics. What’s this got to do with housing? Well, there’s this one concept called ‘‘Barnesian’’ performativity – which sometimes suggests an economic theory or prediction actually shapes and shifts the world around. It’s self-fulfilling.

So it’s an engine, not a camera?

Of course, it’s not just words. The housing market, like all markets, is generated and enabled by a whole host of ingredients – from the laws, to culture (the quarteracre pavlova paradise) to economic incentives like very low interest rates.

Markets aren’t nebulous things humans can do nothing about. There is no invisible hand shaping the market. It’s just humans doing stuff, making laws, buying and selling stuff, and communicating.

Let’s talk communication, and take the example of Treasury forecasts.

These are smart people – the Treasury is the lead adviser to the government on economic and financial policy – and since (at least) 1997, they’ve included house prices in their forecasts. In 2017, the Treasury predicted the price of housing would go up by 7.8 per cent the following year. Does that do anything?

Professor Iain White, a lecturer in environmental planning, who has also written about the language politicians use to speak about housing, suggests it does.

‘‘If the Treasury, of all people, say it’s going up by 10 per cent next year, why on earth wouldn’t you invest?’’

Media will, of course, report on this. That’s our job. But this will further reinforce the belief that house prices will go up.

Investors become more confident. First-home buyers scramble desperately to get on board. There will be outraged columns, news reports on how this will put houses out of reach for even more people. People will speak to their friends about the need to buy a house while they still can.

And as White describes it, that public data from the Treasury that is intended to be a detached analysis of what is expected to happen becomes an engine that fuels the market.

We may well have seen a similar phenomenon play out in December last year when Prime Minister Jacinda Ardern said she wanted to see ‘‘sustained moderation’’, or smaller increases, adding, ‘‘I think people expect that you see that in the market.’’

Ardern is certainly correct – people who own an asset want to see its price go up. When the prime minister says this (and signals to voters that house prices really aren’t going to fall), it is likely to have an impact.

‘‘If I was someone looking to invest capital in a way that would likely generate a reliable and good capital return, I would see a statement by the prime minister that ‘sustained moderation’ and acknowledging ‘people expect prices to go up’ in this particular form of asset was close to a one-way bet,

particularly when compared with volatility in other options, such as with US tech stocks, for example,’’ White says.

‘‘Capital looks for places to safely flourish. And housing is about the safest place it can be when politicians are so supportive of asset prices increasing.’’

There’s more. Once the government essentially guarantees housing as an investment, there are knock-on effects. It means people are less likely to invest in new businesses that may actually provide jobs. It’s easier to earn passive income from houses.

So why does the Treasury report on housing?

It helpfully explains this in the 2020 Budget Economic and Fiscal Update document: ‘‘Household wealth is an important influence on the macroeconomy, particularly via its impact on consumer spending.’’

There are a range of factors at play here, but essentially when your home is worth more you think you’re rich and will spend.

‘‘Controlling for the effect of wages, unemployment and interest rates, a 10 per cent increase in house prices is associated with a 1 per cent to 2 per cent lift in private consumption,’’ the Treasury says.

The reason it doesn’t forecast other wealth generators, such as the US stock market, is that ‘‘housing generally makes up the largest share of people’s

assets, and so the wealth and confidence effects on economic activity will be more likely to be captured by forecasting house prices rather than other asset types’’.

Wait – didn’t the Treasury say house prices were going to go down last year?

It did. In a pre-election report it was suggested house prices could fall 5.1 per cent from their March 2020 levels. This did not happen.

Remember how markets are made up of different ingredients. Well, maybe in less turbulent times, the Treasury’s predictions are the steak, the centrepiece of the meal.

What’s certain is that in 2020 the protein was the removal of LVR restrictions, and extremely low interest rates.

That particular Treasury report was also quickly run down by media reports suggesting house prices were continuing to shoot upwards.

And?

OK. Here comes the twist. You may or may not have picked up that, for the past 1000 words or so, I’ve written about house prices. Not homes.

I’ve framed houses as a good or product to be bought and sold. Something you use to turn a profit. I did this subconsciously, because, according to Dr Jess Berentson-Shaw, co-director of The Workshop, that’s how the country views housing.

This is the New Zealand housing narrative. Owning a

house is a rite of passage. It’s what’s going to happen to you if you work hard. It’s part of life, like moving out of your parents’ house, like getting married, like having children.

The problem is that the narrative is becoming a sham. The reality is fewer New Zealanders are buying homes. But the dream is hard to give up. It’s like admitting in your mid40s that you’re never going to be an All Black.

This ‘‘housing is something you earn’’ narrative has also shaped a generation’s policy response to housing, BerentsonShaw suggests.

The narrative is the reason we don’t think about housing differently. We don’t, for example, consider a Europeanstyle public housing system.

Sure, it’s easy for you or me to shoot off a self-congratulatory tweet saying ‘‘we should do what Austria does. Problem solved’’ and move on. In the real world, as Berentson-Shaw points out, it’s unlikely we have the capability, expertise or will within the public service to do something entirely different. Our policy responses have been warped by our own narrative.

‘‘Houses are assets to be owned. And when they get more expensive they’re better, because the owner gets richer,’’ economist Shamubeel Eaqub says of the narrative.

But there’s a flip side. ‘‘Half of New Zealand [is] being made worse off because they can’t access the home-ownership ladder.’’

In Depth

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2021-07-26T07:00:00.0000000Z

2021-07-26T07:00:00.0000000Z

https://fairfaxmedia.pressreader.com/article/281792812056289

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