Buying your house by secret ballot – you’d have to laugh!

Imagine having to buy your next car by secret ballot. 

Or your groceries at Pak n Save – you get to the counter and make an offer in a sealed envelope.  The store manager opens your envelope and declines the offer – but if you meet with her in the office you can negotiate another price for your weekly supplies.

The second-hand car salesman collects all the envelopes for the Mazda or the Mitsubishi once a month.  There are no warranties on the cars, you are totally responsible for all due diligence – if it blows up 50 yards from the yard – stiff bicky.  If you miss the deadline – wait until the next ballot.

This is how we used to vote for union officials and decisions to take strike action on our industrial sites.  By secret ballot.  It was eventually seen for what it is – a system rigged to create unfair advantage.  Well, that’s what’s happening all over Wellington as the housing market awakens from its slumber.  Buyers are forced to participate in a secret ballot to make offers on property for which there is no guarantee of quality (buyer beware), no guarantee of price (it’s a secret) and no transparency of procedure.  It’s a bit like Robert Mugabe telling us that Zimbabwe is a democracy because he runs open and honest elections – whilst pleading a moral obligation to philosophical values.

The stars have aligned and Wellington housing demand is in catch up mode.  In the 20 years from the mid-eighties Wellington house price capital gain per annum was 7%.  The national market through the same time, 8%.  That’s capital gain, not income yield or rental income.  The reason financial planners separate capital gain from total return is due to most housing being leveraged.  Property owners and property investors have mortgages.  The net gain therefore being ‘the capital gain’.

Following the GFC, the introduction of KiwiSaver and the downsizing of government personnel in Wellington our property market has crabbed sideways (about 8% in total over 8 years).  In Laissez faire capitalism where markets are left to their own devices (supply and demand) booms and busts are minimised.  In real life however the unintended consequences of regulation (introduction of KiwiSaver – real estate compliance) can and does create pricing and procedural anomalies.

Just when the balances in first home buyers KiwiSaver accounts reach the 10% + mark for the average Wellington home – boom, the market responds with significant price rises, and the euphoria is fuelled by a media frenzy.  Not a media with an investigative bent to warrant a Pulitzer prize for journalism.  Headlines proclaiming how much property A sold for 6 months ago versus a recent sale of the same home.  Not headlines explaining the rising costs of due diligence, the non-transparency of a closed tender process, or explanations of how a newly regulated real estate industry has professionalised the sale and purchase experience for frustrated and genuine buyers.

It reminds me of the wonderful story of the old Russian President visiting an American supermarket for the first time, wondering how there was so much choice, yet the market seemed ‘efficient’.  In other words, supply equalled demand and the business ran at a profit.  In Russia the central planners ran the business, not free enterprise.  The bureaucrats ordered the supplies and the people queued for hours to buy their bread and milk.  Sound familiar?

Such a shame that a wonderful opportunity (KiwiSaver) for first home buyers has been hoist by its own petard (another central plan) in a regulated environment designed to protect the consumer (as in Russia) when the unintended consequence is mystery shopping, secret ballots and regulatory ring-a-ring-a-rosie.  Meanwhile frustrated buyers are challenged to take greater risks and make offers on properties without considering consequences such as leaky buildings or non-compliant alterations – if they expect to be successful.

How did we ever get on in the past when buying and selling our properties before our well-meaning councils and regulators ‘improved’ the quality of the dwellings, the transparency of the process and the price we pay to join the game?

If it weren’t so frustrating for those seriously disaffected – you’d have to laugh.