A house can't do work or earn money
Ownership cannot make money
As I write, house prices in New Zealand are approaching an average of a million NZ dollars, which is more than 12 times the income of any New Zealanders who wish to buy them.
The loans are awe-inspiring, and the prices for the randomly stacked firewood that Kiwis optimistically call a fixer-upper, are ludicrous. Nobody seems to be able to stop the process and in fact the actual tools to control it have been labeled off-limits by a government that had its hand forced by its opposition.
Only one minor party advocates for those tools to be restored.
To are two aspects to this. The first is a market failure; a failure, globally evident, to build enough houses for the population that needs them. We can point, with varying degrees of justice, at council permits, zoning restrictions and builders profit-motive, but the results are obvious. Only the most lucrative possible structure will be built on any land that becomes available, not much land is available, and infrastructure that supports a housing development (the roads and utilities) is built into the prices of the new houses. It is paid at the first sale by the builder-developer.
Unimproved land is set aside by owners as Land-Banks, and this is not a new problem.
What happened in the 1980’s was not merely a neoliberal gutting of New Zealand’s working class to feed its owning class. It was also an abandonment of the idea that government (which had been doing a great deal for a century) could be competent to do anything at all.
Yet we are governed by the government we choose to lead us and it is not in New Zealand, either particularly corrupt or particularly incompetent. It responds to us. Even I have the ability to speak with someone who can speak with the Prime Minister, without making a major contribution to their election campaign, without anything but the value of the suggestion or complaint that I offer.
So the government, the instrument by which a nation’s people do collectively what they cannot do as individuals, works. We’ve just experienced that with COVID. We are learning to trust it to a degree not experienced elsewhere, and that IS a good thing.
So our various governments and levels of government need to return to the work of planning and building our infrastructure. They are the collectors (for now) of all the taxes paid on those properties for as long as both exist. They need to plan and arrange to build, the infrastructure that allows access to any empty land that needs housing built on it.
But there is not enough empty land. Those local zoning rules and governments have to adjust restrictions and make the housing more dense, because most cities in New Zealand are currently constructed with stand-alone single family structures on small plots of land that repeat in a carpet of suburban conformity that stretches “to infinity and beyond”. It is an invidious place to be starting.
Yet all those are just one aspect of the market failure we are experiencing, the other is a far deeper and more universal error.
Consider if you will, the common ticket-scalper. In many countries, their activity is illegal, in NZ it is illegal for a “major event”. Scalping is a process widely regarded as immoral with good reason, it is an unsubtle form of theft, obvious to everyone. The scalper profits from ownership, not from work.
The difference between a ticket scalper selling a ticket at 4 times its price, and the auctioneer banging the gavel on a million dollar bid for a fixer-upper on the North shore is indistinguishable from zero. It is the SAME process.
It is one of the most common and least justifiable, in terms of the benefits to a society, processes in any of our societies; it is the rationing of scarce resources according to wealth. It is also a violation of the first law of thermodynamics, which cannot actually be broken; the attempt can only break something else. There are other ways to ration, but let’s understand the basic problem.
The first law of thermodynamics, in terms of money, is “Ownership cannot make money”. This is simply conservation of energy, or “There Ain’t No Such Thing As A Free Lunch”. It isn’t optional, but our existing definitions of money and ownership both, encourage it to be ignored, and have ignored it for most of 5000 years.
There are other problems that come from this, and we run into them quickly.
If your ownership cannot make money, then your house cannot serve as an investment in monetary terms. It may help hold a family together, provide security and stability for your dog, and allow personal expressions in odd colors of paint, but in terms of money, it cannot return to you more than you pay for it. If you rent it to someone else, you can charge no more than the maintenance expenses you provide.
It is quite clearly NOT the way things work in any “capitalist” country I know of.
I note that these limitations are also visible in Christianity, Islam, and Judaism. It isn’t like they are NEW ideas. They are arguably, fundamental principles that allow human societies to endure, but the analysis here is based on the laws of physics. I might say here that science is in agreement with God, but theology was never a strong subject of mine.
So what does our society have to do instead?
If we cannot make money from buying and selling houses, we cannot retire on the income from the rental properties we own either. The retirement we as individuals still require can only be provided by our society. It would SEEM impossible, but consider that at the same time as we do this, we have also freed up the resources the society previously dedicated to the unearned wealth of owners. Truly great wealth has seldom been a result of the work of an individual; it is invariably the payment to that individual for the things they own.
Consider that something we own but does no work, can require the work of other people to be paid over to us. It is a legal condition, it has no limits, someone could “own” everything in the world. The inequality we suffer, in which about 150 people own as much as half the human population of the world, is not a natural result of those 150 people being that much better than everyone else.
Who is paying for their lunch? Why?
The mechanics of fixing this are longer and more complex than a small discussion can cover, but a debt-jubilee, local council monetary authorities, an Ownership INCome (OINC) tax and a realistic retirement benefit are all parts of a comprehensive solution to cover retirement and remove speculation and “investments” from the houses we wish to make our homes. The previous discussion about “the largest mistake” covered much of it but when we reach housing we have to do more than merely rectify the mistake, we have to repair the damage.
We must combine them with more housing being built if the housing debacle is to be fixed.
It is a large problem, and not only in New Zealand, but it is one of the things that broke when we defined money and ownership incorrectly.
Fixing it starts with applying the correct definitions.