Everyone knows the law of demand and supply.

Beyond a certain point, more demand for something means the price of that something goes up.

Similarly, more supply means price goes down once you get past a critical point.

It’s not rocket science.

Now apply that thinking to the housing market in NZ.

About half a million people have decided to make NZ their home since 2013 so there’s no shortage of demand for housing. The number of houses being built has not kept pace though and that, dear reader, is why there’s a housing crisis.

It makes me wonder why the bloody hell successive governments regurgitate initiatives that stoke demand on one hand but do bugger all to address supply side concerns. WTF?

Here are some examples:

  • Use KiwiSaver for a deposit on your first house.
  • Give a $10,000 subsidy to first home buyers to help them buy a house.
  • Provide a Welcome Home Loan so that first home buyers can get into a house with less than 20% deposit.

These things make it easier for people to buy a house. Therefore, they increase demand for housing. I’m all for people getting into a house (um, that’s my business) but if excess demand is the problem then why create more of it?

Labour tried to implement a CGT which would have dampened demand for housing, but they were too soft to get that through.

Yesterday, the ‘Reset’ was announced. What a joke. They’ve given up trying to build more houses and decided instead to make it easier for people to get into a house by allowing a smaller deposit threshold for first home buyers. And they’ve also added a rent to buy scheme so that even more people get the opportunity to buy in future.

Like I said, I’m all for people buying houses but these initiative create more demand. We don’t need more demand, there’s tons of it already!

Demand side initiatives are easy to implement, that’s why governments give them a go.

The hard truth is that supply side factors need to be tackled and no, I don’t mean the government should build more houses. Kiwibuild sought to address the supply side but development and execution of that policy was piss poor at best.

The government needs to stop pouring petrol on the demand fire and focus instead on creating an environment within which the private and NGO sector can sort the supply side issues, leaving them to build the houses we need.

Creating that environment is hard work, it won’t show quick results and the situation will get worse before it gets better. And since governments don’t stick around that long (even popular ones get the boot eventually) it means the incentive isn’t there for the government of the day to take action now.

Supply side initiatives that will help include:

  • Trades training, incentives to get people into the trades
  • Infrastructure spend – more roads, schools, power, water. Borrow the money and build it.
  • RMA reform – don’t chuck it out just make it simpler and easier to navigate while maintaining decent environmental outcomes.
  • Land release – more and higher density too. Go out, but also go up

Told you they’re all difficult!

Since no one in power has the balls to do this it would be my strong desire to just go for it and put your money into investment properties. It might be hard in the short term, but in the long run it’ll definitely pay off.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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