The Mayor of Wellington Wants to Buy You a House

I recently saw an alarming quote by Wellington’s mayor, Justin Lester.

In an article about housing problems and solutions, he told Stuff.co.nz:

“In Paris… the city aims for 25 percent of dwellings to be publicly owned so that young people, families and key workers can afford to live in the city. These are houses for police officers, nurses, firefighters, hospitality workers, cleaners – people that are critical for the success and vibrancy of a city. If we have cities that price those people out of town, or force them into subsistent living, we will create something dystopian.”

At first glance, you might see the flowery words like “success” and “vibrancy” and “critical” and think that this is an idea you could get behind.

It’s okay. I did too.

The more I thought about it, the more I realised what Justin’s really suggesting – state-owned housing for people of his choice.

Sounds a bit scarier.

Did you immediately picture the subsidised housing we’ve all seen in the outskirts of major cities? Dozens of dull grey apartment buildings that all look the same. Clothes hanging from each window. Rubbish piling up on the ground. Graffiti. Sirens.

But that’s not really what’s he’s suggesting, is it?

It’s not poor folks he’s trying to help. It’s his employees. Public servants. Tax-funded jobs that he views as critical.

He lists:

• Police Officers
• Nurses
• Firefighters

He also mentions hospitality workers and cleaners, but to me, it feels disingenuous.

Almost like he threw them in because people might realise that the first three groups work for him.

Issue #1: Key Workers

The first big glaring issue with this proposal is the idea of “key workers”.

Who gets to choose what that means?

Mayor Lester?

Jacinda?

Winston Peters?

Rhys Darby?

Sure, they start with firefighters, nurses, and police officers. That’s obvious. But who comes next?

Maybe teachers? What about bus drivers? Tradies? Mayors?

Eventually, he’s going to have to start telling different industry-workers that their jobs just aren’t that important… and that they should have to pay more for their homes.

I just hope newsletter editor is on the subsidised list.

Fingers crossed!

Issue #2: Supply and Demand

The second big glaring issue is the idea that Mayor Lester wants to combat rising house prices by buying central real estate.

What do you think will happen when 25% of the apartments in Wellington are suddenly purchased by the state?

The prices of the other 75% will shoot up.

That’s basic supply and demand.

If the state pays current market value for the proposed public apartment buildings, you’re going to see every single other apartment increase in price.

And by my back-of-the-envelope math, that increase would be an instant 33% jump.

A cunning investor might see that and start to consider buying a home before Lester’s plan goes through.

Issue #3: Paris Syndrome

The third and final issue I have with Mayor Lester’s proposal is that he compares Wellington to Paris.

I wonder if Mayor Lester has ever been to Paris.

If you’ve been to Paris, you’ll know what I mean.

Sure, there are the major tourist areas which are truly beautiful: Arc de Triomphe, the Louvre, the Eiffel Tower, and my personal favorite – Montmartre… but beyond those isolated historic reserves, there’s 105 square kilometers of nearly identical 37 metre tall apartment buildings.

(Up until recently, no buildings could be taller than 37m so that the Eiffel Tower could be visible throughout the city. However, this rule has been relaxed in 2010.)

The sprawling landscape of suburban Paris is distinctly urban, dense, and unremarkable. Homelessness, crime, and decay plague the streets.

The Parisians I know have told me that if it weren’t for the job opportunities, they’d leave the city in an instant.

That’s not the reputation I’d wish upon Wellington… and yet, that’s exactly what Mayor Lester has proposed.

If he were to visit, I have a feeling he’d fall victim to “Paris Syndrome”.

If you haven’t heard of it, Paris Syndrome is the very real affliction that affects tourists who come to Paris and are utterly disappointed by the reality of the city. It’s so far from Hollywood’s romantic image of it that in extreme cases, travellers suffered from “hallucinations, panic attacks and convulsions”, according to the NZ Herald.

Why?

The NZ Herald does a great job of explaining it:

Homelessness remains a major social issue, having risen 50 per cent in the decade following 2001, according to French statistics. Middle-aged men sleep on cold benches and hard floors in stations that smell of urine.

On major street corners, small families in dirty clothes hold up cardboard signs and empty coffee cups begging for spare change. Some are part of the city’s one-in-10 unemployed. Some are drug addicts. Others may be refugees, or Eastern European migrants posing as refugees.

Some waiters and hotel staff will be short and snappy, particularly if you force them to speak English.

Avoiding eye contact with strangers is standard practice.

Practically every Hollywood film set in Paris features a balcony with a view of the Eiffel Tower. In reality, expect to pay hundreds of dollars for an old-fashioned room the size of a matchbox, which – if you’re lucky – will come with a view of a dozen other identical terraces.

Not exactly “vibrant” is it?

Wellington’s Scary Future

I agree with Mayor Lester’s point that houses are overpriced… and that it’s pricing hardworking Kiwis out of the city.

I reckon there’s a major correction to house prices coming. It’s going to be countrywide and intensely painful for nearly every single Kiwi who has bought a house in the last two to three decades.

It could leave most homeowners with “negative equity” – a financial curse that will follow them for the rest of their lives.

Best,

Taylor Kee
Editor, Money Morning New Zealand