Around the world, the media is constantly filled with articles and opinions on housing – and its affordability.
Following the global financial crisis (GFC) in 2008, housing prices in many countries fell sharply. But in a great number of places, house prices have now recovered and are handily surpassing the peaks of pre-GFC times.
Even with low interest rates, affordability is being stretched for many home buyers. The situation is made worse with government and bank policies that have limited loan-to-deposit ratios for home buyers. In many markets, buyers now need to find 30 percent to 50 percent for a down payment. And higher stamp duties have been part of the policy mix in many places, further adding to the affordability problems.
So even if a family can service the mortgage, the down payment (the other part of the affordability equation) is so high it makes a home purchase unattainable.
The media gets involved
That’s why you’ll so often see the media waxing lyrical about this situation… and accusing governments of “colluding with developers” in a scheme that makes housing unaffordable.
The latest example comes from an article in Hong Kong’s leading English language newspaper, the South China Morning Post. The article, “How Hong Kong’s greedy property tycoons can redeem themselves”, makes some reasonable points and opinions.
But then the writer launches into a rant about property developers, describing them as “bloodsuckers”, and “vultures who feed on Hongkongers to fatten their wallets”. The writer also says, ” the names of our tycoons are synonymous with greed”.
This is all very emotional stuff that tells you more about the political views of the writer than the facts of the situation in the market.
But there’s a far more serious contention. And it’s something that is frequently said in articles in the real estate space in many countries.
Here’s the line:
“(Hong Kong Chief Executive) Lam’s so-called ‘starter homes’ proposal for young first-time buyers has already sparked suspicion that it’s just a cover for yet more collusion between the tycoons and the government. ”
The accusations of collusion are problematic. Journalists are treading on dangerous ground by making statements about collusion between government and private developers.
The definition of collusion includes the following:
“Secret or illegal cooperation or conspiracy in order to deceive others”.
“A secret agreement, especially for fraudulent or treacherous purposes; conspiracy”
“Agreement between people to act together secretly or illegally in order to deceive or cheat someone”.
“A secret understanding between two or more persons to gain something illegally, to defraud another of his or her rights, or to appear as adversaries tough in agreement”.
The essential ingredients here are “a secret agreement to cheat or defraud someone”.
When I see the pundits talking of “collusion between government and developers”, I have to ask if the writer is accusing the government and developers of engaging in secret deals with the aim of defrauding people, or cheating them – that is, of blatantly illegal behavior.
In all my years of anlaysing, studying and researching markets in Asia and other major markets, I have never seen evidence of collusion as defined by the above. There have been some examples of outright corruption, but not of collusion.
Developers may be greedy and uncaring, but this is not illegal. And government bureaucrats may be incompetent, ill-advised and afraid to make a decision for fear of repercussions, but none of these things are illegal.
If journalists are actually accusing government officials and developers of illegal, secret deals aimed at cheating or defrauding people, then they should be prepared to show some evidence. Otherwise, they could quite possibly find themselves in a court of law defending charges against accusing people of illegal acts that they have not engaged in.
So the next time you see media articles accusing people of collusion, just ask this question: Is the journalist making accusations of underlying illegal cheating and fraud, or is he simply trying to make political points?
Probably the latter. And the “charges” of illegal behaviour should be dismissed.