The debate over just how big the housing shortage in Auckland actually is and how much building is going on there flared again yesterday, both inside and outside Parliament.
Phil Twyford challenged Nick Smith over the scale of the house building going on, while Smith again called Auckland's building boom historic.
Twyford accused the Government of using inflated figures when saying the current building boom was 30% bigger in real terms than the one in 2004 under the previous Labour Government. He pointed to a 137% increase in house building costs and that building consents now were more than 2,000 lower than in 2004.
Smith defended the use of the 30% increase figure, pointing to construction outside of houses, and said the 2004 boom was inflated by 'shoebox' apartments. He also said house building costs per square metre had risen at a rate of 5% per annum under National, but rose 8% per annum under Labour.
Challenged again on the scale of the current building boom vs the one in 1974, Smith again described the current one as historic, saying: "The number of homes built last year was just under 30,000. That is a record period of 5 years of 20-plus percent growth, it is the highest in 10 years, and in all of New Zealand's history is exceeded only by two other years. In anybody's terms that is a building boom."
Twyford then focused on the number of house building consents per 1,000 population of 6 now vs 13 per 1,000 in 1974.
Smith said the Labour Government in place in 1974 was "spending out of control" and that that building boom collapsed in 1976.
"What you see from this Government is steady ongoing improvement. This is the longest and strongest period of home construction growth, of 20 percent per year, 5 years running," he said.
The exchange illustrated how the Government is exaggerating the 'historic-ness' of the current house-building boom in Auckland relative to history and the size of the population.
House building in Auckland has still not risen significantly above the rate of 10,000 per year, when more than 15,000 a year is needed to keep up with population growth, let alone catch up with an under-build of at least 5,000 a year for the last three years.
The Government itself agreed with the Auckland Council in the Accord that the shortage at the end of 2012 was 20,000 to 30,000, so the shortage now is at least around 40,000. The Auckland Unitary Plan Panel estimated in July last year after an exhaustive block-by-block analysis of Auckland's housing maps that the shortage was 40,000.
In my view, the Government's attempts to downplay the scale of the shortage and to exaggerate the scale of the building response makes it look out of touch and defensive. The comments this week by both Smith and Bill English about the very recent flatness in Auckland house prices indicating that the problem are less severe also does not tally with the Government's own approach as recently as 2013, when it used a house price to income multiple of 5.0 in its own Special Housing Areas Act as a benchmark for affordability and a trigger for using special powers to accelerate the supply of housing.
If the Government was serious about using supply as its response to housing affordability then, by definition, the supply response will not be complete until housing affordability in Auckland drops from over 10 now to 5, rather than prices not rising as the measure of success.
ANZ rejects MBIE's 'eye-balling' of chart
Meanwhile, ANZ Chief Economist Cameron Bagrie denied that ANZ had forecast a national housing shortage of 60,000, as Treasury had said in this briefing to the Minister.
Bagrie told me MBIE had calculated the 60,000 figure by 'eye-balling' one of ANZ's charts on the 'flow' of housing demand and supply, rather than the stock of houses.
"We were measuring the flow (whether we were building enough houses) not the stock (which is very dependent on your starting position)," Bagrie said.
"They assumed the market was in “balance” in 2008 and added the flow from that period on (from eyeballing it as opposed to getting the numbers)," he said.
"Stock numbers are heavily influenced by changes in the number of people per house. This effectively back-castes stock figures."
The debate fired up this week when Bill English also expressed scepticism about the 60,000 figure, saying he thought it was probably 10,000 to 20,000.
DTIs already at 9-12
KPMG released its annual Financial Institutions Performance Survey (FIPS) survey of bank performance today, showing that the Reserve Bank and the Government may have already missed the boat on limiting debt to income multiples for mortgage lending.
Steven Joyce effectively kicked the DTI discussion into touch until well after the election earlier this month, particularly given any tool that used British (4.5) or Irish style (3.5) thresholds would significantly hit lending. Data is scarce on exactly what types of multiples the banks have been lending at in recent years, but KPMG's survey showed New Zealand multiples are much, much higher than the thresholds used overseas.
KPMG reported bank executives had said they viewed a DTI limit threshold of 5-7 as ideal for New Zealand circumstances, although they cautioned it could hit first home buyers in particular. The Reserve Bank has not said it would exempt first home buyers in the use of any tool, but has targeted landlords in its last two versions of its loan to value ratio limits.
"When asked about the implementation of debt to income (DTI) tools, executives are in unanimous agreement that the RBNZ’s consideration of DTI measures are taking place a bit late in the cycle, as current DTI ratios have already exceeded levels that would have been considered ideal," KPMG said.
"According to executives, an ideal DTI level would be 5-7. However, they say most borrowers are already at levels of 9 to 12," it said.
While you were sleeping...
An axiom of politics is that it's almost never the act itself, but the lie or the cover-up that follows it that causes the biggest problem. This is proving the case with the Russian contacts story, which is not going away for the Trump administration despite the resignation of Michael Flynn. Donald Trump and his team have denied for months that they were in contact with Russian officials before the election and inauguration, but the New York Times reported this morning that four officials had revealed that phone taps showed Trump's campaign and his associates had repeated contacts with senior Russian intelligence officials in the year before the election.
There are also questions about the cohesion and competence of Trump's team inside the White House now. The Washington Post reported no-one in Trump's inner circle told Mike Pence for two weeks that Flynn had misled Pence, who had repeatedly spoken in defence of Flynn. And then there's the question of why Trump waited 17 days between being warned about Flynn's contacts and the risks of Russian blackmail by his acting Attorney General, Sally Yates, before asking for Flynn to resign. Trump fired Yates, an Obama appointee, four days after her warning about Flynn.
Officials describe "borderline chaos" inside the White House and Axios' Mike Allen quotes one official on the consequences of the Yates firing thus: "They had to know she was radioactive, and that there would be consequences. It was either reckless, or totally incompetence. It leads back to the fact that nobody is in charge."
Number of the day:
US$15 million - The annual earnings of a 27 year old Swedish video blogger who calls himself Pewdiepie. The blogger (real name Felix Kjellberg) has 53 million followers who watch videos of himself playing video games. The FT reported Youtube and Disney had dropped him after he made anti-semitic comments in a video.
Tweets of the day:
Jonathan King after Sean Spicer got a third name wrong:
Joe Trudeau, Malcolm Trumbull and Abe Shinzo should get together and kick these guys asses.
Trump nominates relative unknown candidate Bill Blutin to replace Michael Flynn on National Security.
Have a great day.