Frances Cook and OneRoof's Need to Know series set the record straight on the home loan process.
Opinion
OPINION: By Chloe Swarbrick
As Parliament returns for its second week in 2021, I'm with the rest of my electorate in our level 3 lockdown, working from my Auckland Central apartment. We've been here before, and we'll do it again. But I reckon, with some political guts, we can getthrough it this time without pouring more fuel on the long-burning fire of inequality.
Of course, substantive inequality has existed in Aotearoa since before I was born - three years after Ruth Richardson's 1991 Mother of All Budgets. But in my lifetime, under successive governments, it's got far worse, to the extent that the top 10 per cent own 59 per cent of all wealth in this country. The bottom 50 per cent? Well, they're left with 2 per cent of the wealth.
We've got an incredibly unique inequality mess in New Zealand, because two-thirds of our nation's wealth is held in housing. When that wealth is unevenly distributed, it means some people have more houses than they could ever need, while others are left without a roof over their head.
The inherent problem with wealth inequality is that it compounds. Wealth makes more wealth. Poverty costs money.
If you already own a house, even with a mortgage, you can borrow from the bank against unrealised (and untaxed) capital gains; you can keep leveraging low loan-to-value ratios (LVRs) and keep making capital gains.
We've got an incredibly unique inequality mess in New Zealand, because two-thirds of our nation's wealth is held in housing.
On the other hand, if you can't afford to go to the doctor's today for a stomach ache, you may end up in hospital with appendicitis and time off work. If you can't pay a parking ticket, you're paying interest you definitely can't afford. If you can't afford to put nutritious food on the table, you're paying for eventual health problems. If you can't afford to put a roof over your or your whānau's heads, you're paying in the transience from school, the mental distress in an inability to plan, the unfixed travel costs.
I grew up being told we lived in a rockstar economy. I remember thinking that if this was what a rockstar looked like, they were abusive. High highs for a select few, and very low lows for the rest.
We didn't put the rockstar in rehab before Covid-19 hit. And the peaks and troughs are becoming all the more ruthless.
Official Information Act requests from our fourth estate revealed a substantive advice document from Treasury and the Reserve Bank from back in January 2020, before Covid-19 had reached our shores.
It outlined some potential tools to cushion an eventual economic blow. The most interesting tool was Large Scale Asset Purchases (LSAP), which would pump cash into the system and keep interest rates low. Treasury and our country's central bank concluded that if it were used, there would be high risk of significant "distributional" (by which they mean, widening inequality) impacts. They suggested the tool shouldn't be necessary.
Then everything changed, and in March 2020, with our first lockdown, RBNZ began what would in the next 11 months become $22 billion worth of LSAP. Interest rates were low, so people with wealth - with housing - did what "rational economics" dictates: they got more wealth. The housing market didn't grow more houses, but distribution of ownership centralised into fewer hands.
RBNZ has two legally mandated goals: financial stability and maximum sustainable employment. By all accounts and to the shock of many pundits, they've succeeded. It just so happens that rocketing house prices weren't so much an unintended consequence as much as they were a predicted outcome the government would have to deal with through fiscal policy: tax and spend.
Reserve Bank Governor Adrian Orr. Photo / NZME
Last week, Reserve Bank Governor General Adrian Orr fronted to our Finance and Expenditure Select Committee. I put to him the above, in acknowledgement that they'd used all the tools they have at their disposal to achieve the bank's KPIs, and asked where responsibility for the housing crisis therefore lay.
He answered: "I would say for economic policy, there's always, you know, the overarching policy of the government of the day."
Inequality and the housing crisis it entails isn't inevitable. It was literally predicted. If we care to reduce inequality, serious political guts is our last hope.
