Bishop is obsessed about massively increasing the supply of cheap new houses to reduce average prices.
“I wake up every day,” he says, “determined to improve housing affordability in this country.”
It is, he says, his “driving mission in politics”.
Bishop even argues, unconventionally, that if house prices fall, productivity will rise. The more mainstream view is that if productivity rises, houses become more affordable.
Despite being National’s campaign strategist, Bishop is impressively stolid about the political consequences of falling house prices. The majority of New Zealand homes are owner-occupied, but Bishop says owners’ losses would be first-time buyers’ gains.
He says it’s a moral issue.
The minister is true to his words.
In February, he announced he would “flood urban housing markets” by redesignating rural land adjacent to Auckland, Hamilton, Tauranga, Wellington, Christchurch, Whangārei, Rotorua, New Plymouth, Napier, Hastings, Palmerston North, Nelson, Queenstown and Dunedin for urban development.
He won praise from millennials and left-wing commentators.
His fast-track legislation will give him, Shane Jones and Simeon Brown the power to so act.
For example, Bishop has long advocated for Winton Land’s Sunfield development to house 15,000 people in cheap homes on the edge of South Auckland.
But that’s only the start.
Bishop said this week he would use “every option available” to build more cheap houses, including his new build-to-rent scheme for foreigners.
He has demanded councils designate enough land for development for 30 years of population growth or face the prospect of him imposing rules on them to do the same.
What isn’t clear is who all the cheap new houses are for.
They’re not for family break-ups. The divorce rate increased five-fold from 1962 to 1982 but has trended down since, now being no higher than in the mid-1970s.
The birth rate is below replacement level so the population would naturally stay stable or marginally trend down.
At the same time, the ongoing flight of the middle class to Australia and beyond has reached record levels.
During the Clark Government’s nine years, a net 240,000 New Zealand citizens left permanently or indefinitely. That was balanced by a net 425,000 new immigrants.
Both numbers fell under the Key-English Government’s nine years, with a net 165,000 citizens leaving permanently, balanced by a net 400,000 new immigrants.
Even with Covid keeping the borders closed for so long, a net 55,000 New Zealand citizens left under the six years of the Ardern-Hipkins regime, balanced by an extraordinary net inflow of 350,000 new immigrants.
In 2023 alone, a net 47,000 citizens left, balanced by an unprecedented 178,000 net new immigrants, making election-year economic data look much less terrible.
Despite overall net migration being 131,000 – a new Dunedin region roughly over the same time Chris Hipkins was Prime Minister – headline gross domestic product (GDP) rose just 0.6% in 2023.
Real GDP per-capita fell 1.6%.
The average person’s purchasing power from their disposable income fell a painful 2.8%.
Everything is set to be worse this year.
If trends over the first four months continue, a new record net 70,000 citizens will flee by Christmas. They would be balanced by a net 130,000 new immigrants.
The only reason we need new houses – and the only reason we’ve ever needed them this century – is to accommodate new immigrants. Without them, the population would have fallen.
That means, when you see a new house being built, it’s not for the young couple and their cute new baby renting next door. It’s for the young couple and their baby queuing up – or paying an agent to queue up – outside Immigration NZ offices in India, the Philippines, China, Fiji, the UK, South Africa and the US, which together provided over half our new immigrants in 2023.
The Government’s policy is to maintain high immigration for the foreseeable future, to replace citizens leaving and to generate at least headline GDP growth. It needs high headline GDP growth for Finance Minister Nicola Willis to have a chance of eventually delivering a surplus. For that goal, it doesn’t so much matter if per-capita GDP keeps falling.
The Prime Minister argues, probably naively, that under his leadership Immigration NZ will do better at attracting well-educated entrepreneurs to New Zealand rather than Uber drivers.
My money remains on immigration consultants in Mumbai, Manila, Shanghai, Suva and London having it over any Wellington bureaucrat.
The Government’s commitment to keep immigration high means Bishop will fail in his mission to reduce house prices, at least as he understands it as an imbalance between supply and demand.
In fact, of course, that only matters at the margins.
In reality, house prices are almost entirely a function of interest rates.
Whatever hard-hat photo opportunities and bold new policies successive housing ministers have generated over the decades, when the official cash rate (OCR) goes down, house prices soon go up. When the OCR increases, house prices soon fall.
That was never more obvious than when Adrian Orr was printing money and Grant Robertson borrowing it. Despite a global pandemic and lockdowns forcing tradies to stay home, house prices soared more than ever before, increasing the paper wealth of Kiwi homeowners by around $1 trillion.
Once Orr belatedly raised rates, house prices fell back again, evaporating around half of the trillion paper dollars, despite record net immigration.
Bishop can claim that house prices are already falling under his watch, but that’s mostly because Willis is borrowing so much that the OCR risks staying higher for longer.
When interest rates finally start falling, Willis will claim victory. But poor Bishop will be defeated as house prices rise again.
Bishop’s new houses are great news for property developers, construction companies and tradies – and of course for the new immigrants they are being built for. But they aren’t going to make much difference to house prices, one way or the other.
That’s probably for the best.
New Zealand’s small and medium-sized enterprises (SMEs) are primarily backed by our $350 billion of home mortgages.
If house prices fall, banks won’t lend to SMEs to help them grow.
The Government itself is exposed, given Kiwibank’s $25b home-loan portfolio and Kāinga Ora properties being worth $40b.
All three of Standard & Poor’s, Moody’s and Fitch identify falling house prices as a major risk to the Government’s credit rating, in significant part because that would destabilise the banking sector.
Higher interest rates would thus be both a cause and consequence of falling house prices. The good news is that house prices should start rising again next year.
