There is a macroeconomic dynamic that appropriates Newton’s third law. For every action there is an equal and opposite
reaction. To a certain degree this can apply to economic principals relevant to the housing market.
When a governing law sets specific stipulations for industries or markets, often with good intentions, these same laws
can have very opposite results.
The reason for this is due to the fact that macroeconomic principals apply even to targeted legislation, regardless of
the leaderships’ intentions.HOME LOANS AND HOUSING UNAFFORDABILITY
The first example comes from the recent Credit Contracts and Consumer Finance Act.
Regardless of intention, if you stipulate to a profit driven organisation that they should reduce their risk and apply
loans with greater discretion, they will gladly do so.
The overt result is that millionaires and people with multiple assets continue to receive bank loans with limited
barriers, while others are immediately deterred as Banks apply these new risk aversion policies.
The real world result of encouraging banks to restrict loans is that people with wealth who are overtly low risk and
high yield receive the larger portion of loans, while new home buyers, lower credit individuals including single parents
and even dual income couples, will have more barriers to loans.
These results could have been foreseen by those who apply macroeconomic principals.RENTAL MARKET AND RENT RISES
The second example comes from the recent additional Healthy Homes legislation.
The intention was to upgrade and improve the current state of many tenanted properties with healthier standards. But
this punitive approach directly impacts all landlords’ total cost of ownership (TCO).
Many other factors are already discouraging rental property ownership, the additional legislation simply enhances an
already growing trend: raise rent prices to offset asset risk.
Landlords must choose to accept less income from their assets as more new costs are introduced (regulation, body corp
insurance, council rates), or they must raise rents.
Moreover, exactly as the Banks determined, by raising rental prices they effectively diminish “risks” in their mind set
as higher income means they can offset unplanned costs such as damages and increased maintenance costs. Landlords will
factor into their risk aversion and TCO these increasing macroeconomic pressures.THE CARROT STICK APPROACH APPEARS TO BE ALL STICK
Trend analysis indicates that we can expect BOTH average house prices to rise and average rental costs to rise in the
year 2022. Initial estimates indicate a 6% nominal rise across the entire New Zealand.
Why do government laws not provide improvements in these explicit markets? They certainly can impact the short-term
trends, as already seen by legislation.
However, because almost every single piece of legislation has been punitive in nature, the macroeconomic drivers
supplant any early results.
The current New Zealand housing market boom is driven by much more profound, underlying global macro-economic
instigators that require government to use holistic approaches.
Fixation on punitive legislation, given the current macro-economic environment, can have substantively negative
consequences related to Kiwi investments, household income, and overall economic stability.
Leadership should consider applying new incentives that will help landlords see value in TCO for their properties,
create incentives for Banks to value lower income families and individuals, and implement incentives for developers to
build housing stock that is affordable to lower income owners.
Otherwise, laws being introduced will continue to negatively impact the very people they were intended to help.
Mark Rais is the creator of the think tank Trend Analysis Network, writer for the technology and science industry and
volunteer senior editor for an on-line magazine. He has published several books and written numerous articles on the
topics of macro-economics, technology and society.