Summarised by Centrist
Political commentator Matthew Hooton argues that Housing Minister Chris Bishop’s affordable housing plans might benefit property developers and new immigrants but will not significantly lower house prices in the long term.
Instead, he suggests these plans risk creating economic instability and credit rating downgrades, ultimately leading to higher interest rates.
Hooton writes that low birth rates and high net migration loss inform the government’s high immigration policy, which aims to boost headline GDP growth. This comes at the expense of per capita GDP growth, while maintaining high demand for housing.
Bishop wants to increase the housing supply to lower prices, arguing that falling house prices will boost productivity. However, the mainstream view, according to Hooton, is that increased productivity is what makes housing more affordable.
The current fall in house prices is primarily due to high interest rates, not an increased housing supply, he writes.
Hooton contends that if house prices fall too much, it could destabilise the economy, necessitating higher interest rates.
The government and banking sector are heavily invested in the housing market, and falling house prices can reduce the value of these investments.
Credit rating agencies see this as a risk to New Zealand’s credit rating. A downgrade would increase borrowing costs and interest rates, further impacting the economy and housing affordability.
Hooton writes, “When interest rates finally start falling, [Finance Minister Nicola] Willis will claim victory. But poor Bishop will be defeated as house prices rise again.”
Editor’s note: Hooton’s speculation about the risk of an NZ credit downgrade seems quite premature to us.
