By Elizabeth Davies
Few people would argue that John Key represents the interests of young Kiwis. He seems to embody the social awkwardness we fondly mock in our parents’ generation, and yet, despite his lame dad jokes, he doesn’t feel like family.
The 2014 budget was announced on Thursday and I couldn’t help but feel a tad left out.
The Government announced a NZ$500 million package that includes a four week extension (to 16 weeks) to Paid Parental Leave, an increase in the parental tax credit by NZ$70 a week and entitlement by two weeks to 10 weeks, and extra funding for Early Childcare Education. GP visits will now be free for children under 13, a drastic jump from the previous age of 6.
While all this sounds wonderful the increased parental leave still leaves New Zealand below the OECD average of 19 weeks. There will also be no change to the maximum pay rate of $488.17 a week, giving mothers only 82% of the minimum wage, one of the lowest rates in the OECD.
Free GP visits for under 13s sounds amazing until you realise that the scheme is opt-in meaning not all children will benefit from the change.
So National has given those they deem as the most important as little as they can get away with in the hopes of buying votes.
The budget has adopted the apt nickname ‘Bill English’s baby bribe budget’ and it’s easy to see why. National’s desperate bid to bribe families and secure a re-election has come in the form of a $500 million cheque written out to Kiwi families. Not yet having popped out a child, this year’s budget leaves me out in the cold.
Any hopes for first home buyers were quickly dashed when it became apparent we are not a priority, despite public surveys suggesting we should be. We were made one measly offering, a temporary drop of tariffs and duties on building supply materials imports, a measure which would save $3,500 on an average house build, not that any of us are even considering building a new home.
Not only did the budget offer little in terms of relief, it came with a heart wrenching warning that the annual net inflow of migrants is now forecast to peek at 38,000 in the second half of this year, a massive increase from the previously forecast 26,000. More people can only mean one thing – more pressure on the housing market.
The 2014 budget was a dismissive note to first home buyers, ‘we have nothing for you and it’s going to get worse before it gets better, P.S, have a baby and then maybe we’ll talk’.
I can only imagine the frustration felt by those young professional New Zealanders who are desperately trying to buy their first home and establish some kind of financial security BEFORE starting a family. For them this budget serves one painfully obvious purpose – rubbing salt in the wound.
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Elizabeth Davies is a 24 year-old graduate of the Auckland University of Technology post graduate journalism course. She lives with her partner in Epsom and spends her free time refurbishing vintage furniture and attempting to bake while fighting a daily battle against her bank balance. She writes a weekly article for interest.co.nz on money matters and financial struggles from a young person's perspective.
63 Comments
Would a young kiwi without a family trust or family backing be able to get a loan from a bank using that arrangement? Will your daughters daughter be able to do the same thing in say 30 years time if capital gains continue to outstrip inflation?
If the answer is no, maybe you should consider supporting some changes to the housing market.
P.S. Well done for finding an opportunity to get your daughter on the housing market....
"The problem with our young kiwis is, many want a first step into a $2million dollar house in Herne Bay or Epsom."
Jesus Christ, if I hear this line trotted out one more time, I am going to scream! I've recently bought my first house in Auckland and many of my friends in their early thirties are doing the same. The more well-off ones are buying in places like Mangere Bridge, Meadowbank, St Johns, Beach Haven etc. The less well off ones are buying in Otahuhu, Manurewa and Massey... I don't know of anyone looking in or even thinking about the suburbs you list. Even Ponsonby is sneered at these days because it's not even bohemian any more and is a ripoff. I'd say the asspirational first home buyer suburbs these days are places like Ellerslie.
But go ahead, keep trotting out the same old tired old sound-bite, and keep on believing it in your infinite smugness
Ha! Oh the generalisations... The fact is, we're faced with paying half a million dollars for an old, damp house in Kelston. It's official buddy - the OECD says we now have the most over-priced property in the western world.
This isn't about young people wanting to much - we're much more humble than you'd ever give us credit. This is about a de-regulated property market and how its largely failed its people - bar greedy baby boomers who see a human necessity as an opportunity.
Not that I should generalise, but you set the theme so I'll follow suit... ; )
Kimy why is it in a family trust? Why did you not put it in her name and guarantee it? I would have thought you might leave it in your name and get the tax advantages. I did that with my two children in Wellington. I purchased it in my name and now it is paid off their flat mate is paying me rent which I can spend . Once the children no longer use it I will sell it and invest that capital in something better.
I agree Steven. I bought it 8 years ago only for my children to use while studying and as it turns out while they work now. I would not have bought it otherwise. First and only rental. Sold shares for a 25 per cent deposit which hurt at the time. I really prefer investing in private and public companies that create wealth for NZ.
Congratulations Kimy as it sounds like your daughter has a good work ethic like my two children. My professional advice to you is do not rely just on the trust to protect your daughter if she meets a future partner and he moves in. She must also get him to sign a contracting out agreement. Trusts were not designed to protect relationship property but instead were set up to protect people from creditors among other things. They were designed in days when people did not break up as much as they do today. Having both in place is fine but you do need a contracting out agreement as the ultimate protection. The Courts are getting more and more inclined to overturn trusts and companies.
for the benefit of friends
no less
Kimy I hope you have a contracting out agreement with your much younger partner. As stated above when trusts were created all those hundreds of years they were not created to deal with relationship issues. Hence the Government created contracting out agreeements and courts enforce them.
"Also I have a young defacto partner of 8 years now and the age gap is a 20 year gap."
Doing the maths I think you should check if that's legal. If your partner is 8 that makes you 28 which all sounds a bit dodgy - especially given you have 19 year old daughter at uni.
I thought if one took out a student loan - that money was paid directly to the institution which one is studying with? So, you must mean she pays her weekly rent/mortgage with a student allowance?
Point is - regardless whether interest free or not (at the moment) - it's still debt. And that's student debt on top of mortgage debt. Not much of a "plan" really.
I find myself wondering exactly what a goverment should do to make housing more affordable. Boosting supply may help but that may be soaked up quickly by higher immigration. If some financial assistance is given as in the uk at the moment that will fuel deman; see what is happening in the UK Home Counties.
i suppose the government could take action that may depress house prices but that will not be welcomed by those going into negative equity.
has someone got a workable solution? I doubt whether the Labour Party plans would achieve much?
If the government is too scared to take action then there is no solution. That has been Jonkey's problem he will not risk significant change to the housing market because he wants to protect property prices.
But why should property owners be protected from loss. Are workers jobs gauranteed? Do exporters have gauranteed exchange rates. Does the government intervene in the market to protect milk prices from falling. What is so special about property owners?
If there was widespread financial loss for some then the Reserve Bank can lower interest rates. And a financial loss to existing home owners would only occur if a large number of affordable homes were coming onto the market. Thus from the start there would be 'winners' providing stimulation to the economy.
There is two basic approaches for producing new affordable housing.
The government to provide a broad framework of transport infrastructure and then ensure the planning system is not restrictive. Thus developers can access developable land at rural prices and because there is competition between developers the cheap land costs are past to the end consumer. In the US that transport framework was provided by the Federal government in the 1956 Highways Act. The US has 6 times the amount of motorways compared to NZ but only double the population density. This has given the US a characteristic car based urban sprawl. NZ could do this or do a mixed frame of public transport and road/bike lane infrastructure and it could be funded from Wellington or locally if taxation power was transferred down to the regions.
The second method is through compulsory acquisition of land for housing as well as the trunk line infrastructure (roads, power, water is always compulsory purchased at going market prices). So the Government could for instance upgrade train lines and purchase rural land at rural prices around new train stations and put an affordable housing area there. This is what the first Labour government did in the 1930s Kapiti and Hutt vallley rail corridors. This method could also work for dedicated busways.
I think the Labour/Green government is edging towards the second option, but possibly they could have a 10 year transition plan as part of a whole transformative vision for NZ and then hand responsibility for affordable housing and mobility to regional government. Or maybe like the JonKey they could wimp out. As we get closer to the election we will have a clearer idea of what visions are on offer.....
I think the risk to our economy of a housing bubble is exagerated so am inclined to believe it is about protecting the rentier class.
My reasons for saying this are.
1.Plenty of sole property owners have stated they would like it if house prices fell so younger members of their family can afford there own homes. So not all property owners would be adversely affected by falling house prices.
2.It is likely to take several years for cheaper satelite towns, fringe suburbs, eco-villages, bike centric urban ares to transfer to lower prices in existing inner city areas. More likely prices stagnate.
3. There may be some private developers who have debts on unsold residential sections that would lose money if cheaper land became available elsewhere but should the government prevent competition to protect the profits for a favoured group? Does this happen anywhere else in the economy? If it is does? Should it?
4. NZ banks will not benefit from NZs continued expanding private debt that is directly related to the escalating house prices. But they are some of the most profitable banks in the world so they should cope with some less profitable years. In the long run it will put them on a more stable footing.
5. The Reseve Bank has introduced the LVR so there are less high debt borrowers. All mortgage holders should be able absorp at least a 20% drop in house prices in absolute terms. But as stated in (2) probably existing house prices will stagnate in response to cheaper new houses. Inflation even of only a few percent a year adds an even bigger buffer.
6. As I said before the Reserve Bank has the option to lower interest rates to reduce the effect of any downturn if needed.
In summary allowing a building boom based on elastic supply is better than allowing a price boom to continue to inflate.
Chch excepted Im not convinced that we have a significant housing shortage. While you are right on JK being afraid, I think thats not un-reasonable. Sadly it seems no pollie or party is prepared to gently steer the economy prefering instead to do nothing for frea of losing an election. Can kicking par excellence.
Solving housing could be picked at, for instance stop all imigration dead, stop non-tax payers owning NZ houses, these could be done tomorrow and have an immediate effect. Maybe even bring in a land tax on all houses with a corresponding drop in PAYE. I dont think it would take a big % loss of buyers to cause the market to roll over, assuming the LVR hasnt done that already.
I dont think a huge building program for infrastructure would work, it would be like the US a can kick and with expensive transport energy surburbia is past its sell by date.
I'll agree on dedicated busways, I think this as a trolley bus powered solution is very cost effective I suspect...light rail is just not worth it without the density and use.
regards
Dedicated busways would be great for Christchurch. It would easy to do with a change in zoning allowing new towns on cheap land. Google Houten as an example of how they did this in the Netherlands near Utrecht a city of similiar size to Christchurch. It doesn't have to be US style car based sprawl.
I have heard privately that Treasury/Government were too scared to put in new fringe developments in Christchurch's housing accord like they did in Auckland because it can be done so cheaply!
So as you say Christchurch has a genuine housing shortgage and it gets no well thought out transport plus housing developments. While Auckland which has all sorts of other effects that might be better targeted, such as, private speculation, foreign buyers, immigrants that could be refused entry and so on and they get dozens of new special housing areas plus new transport infrastructure funding.
Does this make sense to anyone?
Steven the housing supply argument is not necessarily about a shortage. It is about creating the rules for the market so that fair affordable prices are the result. It is really about dealing with localised monopolies in the new build market.
This can either be done by the state being a significant housing provider that provides new houses at cost.
Or even better it is about ensuring there is so many opportunities to build new houses at cost + minimal profit due to increased competition in land development, building and construction material that the result is fair affordable prices.
FHB should be in a situation where if existing houses and rents are too expensive or of poor quality (unhealthy etc) then they have the bargaining tool of building new or taking ownership of a fairly priced state built house. It is the possibility of building something affordable that keeps prices low not the actual building of houses.
I agree that slowing down immigration and foreign investment in property would help. Canada for instance no longer accepts real estate investment as fitting the 'business' criteria for residency approval. We should do that. Limit immigrants to genuine skill shortages. Insist on strict language criteria. Other countries do this, we should too.
The infrastructure expenditure need not be that expensive. As an example Googlemap Halswell, Prebbleton, Hornby, Lincoln, Tai Tapu near Christchurch. Now imagine if the government and relevant councils decided to rezone this area/rectange being roughly 5 to 10 km square as a bike centric urban area.
The government bought up land within this area for trunk line infrastructure -roads, busways and bike lanes in particular. Allocated areas for parks, green space -especially areas of poor quality land geotech wise or with flooding potential. And allocated some funding to complete the infrastructure as the area got developed. What would this sort of transport frame cost -$100 million. Probably a lot less than the eventual upgrades to the northern and southern transport corridors where sprawling is occuring now.
Then allowed free competition for bike centric developments -these being say a minimum of 40 households in a park like setting, central carpark, homes without garages, small lane to each house that needs to be kept clear for emergency vehicles.
Land is expensive in this area - a 4 hectare bare land lifestyle block cost $400,000. But if you put 40 houses on this it is only $10,000 each. Development costs -3 waters, car park, a few lanes, maybe $90,000. Simple 3 bedroom house no garage-$250,000. Total cost $350,000 which is below the average price of houses in Canterbury.
Who knows how popular this sort of urban living would be. But just by having this option FHB would have more choices and be in a better bargaining position. My bet is a few projects like this in Canterbury would solve the affordable housing problem for Christchurch.
One of the main issues is the cost of building. It is still cheaper to buy than build. Building costs are horrific due to higher standards. Land on top of that. I dont see a drop in prices with increased immigration and high costs. If existing prices fell they would be even further away fromreplace,ent cost. Councils have a lot to answer for as well.
I'm with you, Elizabeth, I seriously doubt the budget has inspired any of our young folk.
But perhaps the worst thing about it that hasn't even got a mention relates to the biggest INCREASE in budget expenditure - that being a 6.3% increase in the NZ super budget - see it very graphically (i.e. in your face) here;
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=112…
And in the week before the budget we had the news that if we means tested super we could save $570m per annum;
http://www.stuff.co.nz/national/politics/10033256/Super-for-rich-has-57…
And that will only get worse in the future given super payments are indexed to the CPI - whereas of course wage rises (for the non-retired!) are not.
Young folks should take to the streets more often. Today's turn out at Sky City is the type of evening news this government deserves on a nightly basis.
I must admit that I am amazed that for so many people they feel deprived if there isn't something in it for them. We're long past the days when people figured out what they wanted, set goals and worked towards achieving it over the long term through their own endeavours. Now days someone's either got to give it to you, or give you a big helping hand (read hand out) to get it - certainly not everybody, but an increasing large percentage of the population.
I love how the existing home owners many of them being boomers of course criticise those who are renting and wish it was easier to buy their first home. New Zealand is and will probably always be a low pay country. So many employers many of whom are doing very well such as supermarket owners seem to think paying people at the minimum wage rate or close to is their god given right. I never had to borrow at 7 or 8 times my income to buy a home. When I had a young family I did not face the ever rising cost of insurances, rates, food and other costs of living we all face today. Many of us were able to buy a basic house on one income. Try and do that today.
As a country and as a world we have a major housing crisis. We need to accept that and do something about it. Those of us who were born in the boomer years need to be more thankful and less critical of those born after us. I can and will help my two professional children into housing as there is no point in thinking you can have it all when I am dead. Not everyone is in my position to help their kids into housing today but the mere fact many are doing just that is proof in the pudding.
Those who could buy houses before the 2002 to 2007 housing price increases were lucky. Time was on our side. Those who are not on high incomes and who have come into the market after 2007 have missed out on easier opportunities. Wages have not kept up with housing inflation.
Mosty rhetoric Anarkist, but that's my point, they're wanting someone to give them their share rather than rely upon themselves - and its not just the real young. Its such as foreign concept nowdays that people make such statements without even realising what theyre asking, they just assume an entitlement.
Its always been thus since the founding of NZ. Politicians have used their positions of being in a position to direct government spending priorities to bribe voters. Its one of the central features of democracy.With better access to information the young have more awareness the largess at stake and where current spending is directed. They want to get in on the action.One could argue its only fair. Why should only the politically connected and old receive all the bounty
?
I think you may be overstating the politically connected part Anarkist but there will always be some of that, just a hell of alot less here than most countries. I have no problem with people wanting to be aware and debate (I wish the internet have been around in my youth) but my point remains, don't blame someone else for not getting what you want, or as soon as you want it, its in your own hands not others. For many, "action" is complaining about it and feeling dprived, when that never amounts to anything, rather than getting out and doing it. The young ones that are, and there are many of them, I really admire, they are a lesson to others young and old. I guess that never changes.
So why do government funding priorities always seem to favor a narrow, wealthy, influential section of the electorate? Property owners, large corporates, the construction industry, the banks, and the roading lobby? Nos its Chinese migrants. Revelations about arrangements like cash for access to MPs puts it all into stark relief.
It don't know that I can agree with you Grant. While, for example, someone in charge of a infrastructure company does individually manage a lot of jobs, a lot more jobs in total are created by the collective mass of small businesses who have no particular access to the corridors of power, and are not easy to throw money at for photo op. projects. Instead the majority of jobs depend on broad nebulous things like the median income of the population so how much spending money is there in the high street.
Sure the product is growth and job but an unfortunate outcome is that it funnels a lot of wealth into a small number of hands. Large banks, property owners with connection in politics and finance, large corporate construction companies. big legal and accounting firms, and leads consolidation in commerce and agriculture, just because its convenient for government procurement to deal with s few large firms rather than lots of small ones.
I may be an outlier on this but question whether promlting growth and jobs is the role of government, all often it ends in unproductive and wasteful use of financial capital, natural resources and human capability just to keep people occupied.
Anarkist - I certainly wouldn't disagree with either you or DH above in that small business is a major contributed, in fact THE major contributor to growth - after all, whilst there's an increasing number of big operators in the industry, the diary industry is still mostly rmum and dad operations. That why I said you mostly named them, but not all. Business is what National supports more than anything, because it's figured out the obvious, if business is struggling people don't have jobs, and without jobs all the other issues that people complain about pale into insignificance.
I see what you're getting at GrantA. I sypathise, but from in my view the way NZ economy is structured both in terms of the individual firm and the wider economy is constraining the prospects for this country to provide a fair and comfortable living standard for everyone.
On one hand you have you have the large corporate enterprises who are or continue to be in their position because of cosy relationship with central and local governnents who and due to the almost guaranteed terms of trade, favorable price setting power, and revenue stream lulls management into empire building, and a culture of inefficiency and waste. And on the other hand you have small enterprise who mean well but due to lack of management capability and skills operate firms inefficiently and are thereby constrained in investing in their companies to improve productivity and efficient practices.
I've decided next year to hold my nose and do some business papers alongside the studies I wish to embark on and see put my theories into practice by starting up my own company.
Scarfie,
Everyone can think, but its much easier to fit yourself into the groove formed by your peers and predecessors rather thank taking the risk to start a new way of doing things.
In my view the vast majority of the economic problems of our age are caused by the vast effort by the powers that be to preserve the outdated notion that everyone must be employed to work at least 40 hours a week, because in their Puritan view, people would misuse the opportunity to enjoy greater leisure time. The problem isn't about inequality or distribution of wealth, in fact efforts to manage the economy through government deficit spending and public works only increase it, by consolidating industry and increasing the tax burden shared primarily by workers, given the vast majority of taxation is extracted via income tax and GST. Furthermore the Capital owners receive returns from their virtually risk free investment in government bonds and the wealth only compounds year on year.
"
10. As the third phase comes into sight; the problem stressed by Sir H. Henderson begins to be pressing. It becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours.”
Keynes did not believe, as Keynesians and post-Keynesians want YOU to believe, that stimulus was a long term solution to overaccumulation of capital. People like Paul Krugman who try to leave this impression are deliberately and knowingly lying about Keynes’s theory. And I want to be clear about this: PAUL KRUGMAN AND THE KEYNESIANS ARE BAREFACED LIARS. The only long-term solution in Keynesian theory to overaccumulation of capital is reduction of hours of labor. It is the same and only solution that labor theory recommends.
Monetarism arose as a response to Keynesian theory precisely because it proposes reduction of hours will not be necessary. In response to the Keynesian critique of the Great Depression as caused by overproduction, monetarism proposes it is cause by insufficient currency in circulation. It is an attempt to reframe the problem posed by Keynes, made possible because his own framework was flawed. Although Keynes knew the problem in the Great Depression was overproduction, as everyone else knew, he reframed the problem as “insufficient demand” for the excess commodities produced. This insufficient demand, of course, was insufficient money demand, i.e., insufficient demand in the form of money to purchase excess commodities produced by capitals."
http://pogoprinciple.wordpress.com/2013/04/24/reinhart-rogoff-and-auste…
"Today “work and more work” is the accepted way of doing things. If anything, improvements to the labor-saving machinery since the 1920s have intensified the trend. Machines can save labor, but only if they go idle when we possess enough of what they can produce. In other words, the machinery offers us an opportunity to work less, an opportunity that as a society we have chosen not to take. Instead, we have allowed the owners of those machines to define their purpose: not reduction of labor, but “higher productivity”—and with it the imperative to consume virtually everything that the machinery can possibly produce.
FROM THE EARLIEST DAYS of the Age of Consumerism there were critics. One of the most influential was Arthur Dahlberg, whose 1932 book Jobs, Machines, and Capitalism was well known to policymakers and elected officials in Washington. Dahlberg declared that “failure to shorten the length of the working day . . . is the primary cause of our rationing of opportunity, our excess industrial plant, our enormous wastes of competition, our high pressure advertising, [and] our economic imperialism.”
http://www.orionmagazine.org/index.php/articles/article/2962/
It's worth putting this in a wider context. I've read Doctor Housing Bubble for 10+ years (he blogs about SoCal RE), and his recent articles are useful:
"The rising unaffordability in real estate is really a larger reflection of a rise in global wealth inequality. Contrary to what some people may think, having a massive middle class similar to what exists in the US is a historical anomaly. The default position for our modern day history is one in which wealth inequality is extreme and profound. The recent argument was that as economies grew, this wealth would eventually lift the standard of living for all. There is new economic research showing that this isn’t always the case especially when a rentier class emerges."
I'd also finger the Higher Ed Bubble as a driving force: the ROI even at zero interest is increasingly negative when one factors in the years of lost earnings....
"“It turns out there are better ways of figuring out what you want to do with your life than getting an outrageously expensive degree that detracts from your future employability. While unpaid internships suck, they suck approximately $50,000 a year less than law school. More importantly, internships will give you a better idea of whether a particular career is right for you than learning the rule against perpetuities ever will.”
one of the difficulties with internships, is it's even harder to justify paying to get the degree when you already have the skills. And the degree can be a big selling point on a resume, and in some jobs eg government sector, it's required to rise to any decent approval-of-funds level.
The other problem with internships, is that unless you're volunteering to be a "friend" of a government branch...it's breaking one on NZ many labour laws.
Google (my copy paste fn is not working) "English: High dollar cities fault" to find an article where Bill says that souring house prices in Christchurch and Auckland are having an effect on interest and exchange rates negatively affecting the whole country. John Key on Channel Three on budget day in response to being questioned about unaffordable houses responded that the answer is supply -not limits on immigration or foreign buyers or on capital gains.
I agree the focus should be on supply, although the above demand measures which National disagrees with could help too. The interesting thing for me is that Bill says that the 'government is working intensively with councils'. But where is the evidence for this? The Auckland Housing Accord is significant -new residential zoning that can accomadate nearly 40,000 houses and they are spending $100s of millions extending the motorway system.
But Christchurch? -180 new homes in the Christchurch Housing Accord and no new transport infrastructure is basically nothing in comparison. Yet Bill says rising house prices in Christchurch post earthquakes because of the effect on interest rates and the exchange is driving down returns for exporters in Invercargil. And where is the intense work between government and councils to bring down house prices in other parts of the country with growing populations -Bay of Plenty, Waikato, Nelson, Central Lakes....
The media need to be questioning this because there is something fishy going on....
The opposition political parties need to offer there own version of intense co-operation between council and central government. New housing doesn't have to stand alone homes serviced by motorways and cars. In the above comments there is plenty of evidence of Busways and bicycle centric developments that could work too. Labour and the Greens in particular can offer the voters a different 'vision'.
"Not yet having popped out a child, this year’s budget leaves me out in the cold."
Well speaking as a male who won't be ever "popping out a child", and whose ex's found that children make great meal tickets in NZ...
What it does mean, that as an employer there's _no_ way I'm going to hire a skilled pre-menopausal woman. The chances that she's going to want a collection of cash and bugger off for months, leaving my business trying to find a short-term skilled temp (for cheap rate) - and that she could cut her leave short at any time...or decide she wants to take up with another company now that "she's experienced her womanhood" thing...taking any in-house skills/training and internal project information with her. Way to risky
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