The Haves and Have Nots of Housing in New Zealand
Much of human history has consisted of unequal conflicts between the haves and the have nots — Jared Diamond
The New Zealand political-economy over the last 40-years has a Koru Club aspect to it — the sort of people who can afford membership to Air New Zealand’s exclusive club are doing well. This privileged and self-entitled group have made huge gains, not from hard work or enterprise, but from regulation that prevents competition in supermarkets, petrol prices, electricity, house building, and so on. Meanwhile the wider population works harder and harder but makes no gains.
The worst offender is housing. This can clearly be seen in the Covid period where the institutional fiscal and monetary response meant homeowners received mortgage deductions and asset price gains while rental households were lucky if their landlord did not put up the rent. As a group homeowners and property investors made $billions while renters went backwards.
The Covid period is not unique, though. Renters have been on the rack for decades — at least since 1990.
Housing in New Zealand is bad — there are many metrics indicating the country’s housing market is one of the worst in the world.
New Zealand needs to quickly change house and rent price expectations. There should be no speculation that house prices or rents will increase in the coming decades. Prices should be constrained by the marginal cost of building more floor space. There needs to be a commitment to contain land prices and construction costs (RMA reform, local government funding reform, infrastructure financing reform, market study of building material sector, assistance for the transition from steel and concrete to engineered wood…).
New Zealand should be pumping out new houses at a rate of 8 to 10 new builds per 1000 people.
This rate of building was achieved for decades after WWII. It was needed to counter the under build from the Great Depression and the world war.
New Zealand has just reached this build rate. Auckland, Canterbury, and the Waikato are doing well. Other parts of the country need to catch up — especially Wellington.
A high build rate is a necessary but insufficient requirement for housing to deliver for the have nots.
There is plenty of evidence that increased house building constrains price increases but there is less evidence that a high build rate will cause large price falls. The outcome seems to be that nominal prices stagnate or in Japans case gently decline.
Last century, when New Zealand’s build rate was higher, house prices were static and it was only through inflation and wage increases that ‘real’ house prices fell. Japan had a house price ‘bubble’ in the 1980s and early 1990s — a consistently high build rate slowly deflated rather than ‘popped’ prices. Canterbury also has a high build rate that peaked around 2015/16 which caused house prices to go sideways rather than fall (rents did dip though).
Auckland’s consents per thousand people has nearly reached 12, which was about the level that Canterbury reached in 2015 so this is an encouraging sign that Auckland’s house prices and rents will stop increasing soon.
The problem going forward is that if the high build rate is maintained, and if house price inflation is reduced to nothing, it will take decades to restore affordable homeownership — 2037 at the earliest according to ANZ modelling — which assumes an unrealistic 5% rate of income growth.
To put that in context, Jacinda Ardern who is a young 41 year old prime minister will be 57 years old by 2037. New Zealanders of her generation cannot wait that long for affordable homeownership.
Some sort of interim housing solution is required. Probably based around rental housing because rents ‘price correct’ faster than house prices i.e. rents respond faster to changes in housing supply. Also importantly, interim rental housing schemes can be better targeted at modest- and low-income households.
The Human Rights Commission is right to launch a national inquiry into the housing crisis because as they say “successive governments have failed to give New Zealanders decent homes”.
Chief Human Rights Commissioner Paul Hunt said for generations governments have promised to create the conditions to enable everyone to live in a decent home, but that has not happened.
Economist Shamubeel Eaqub agreed it was time to recognise housing as a human right.
We’ve signed up to the Declaration of Human Rights (1) but there seems to be very little connection between the Declaration of Human Rights and how our other policies connect together, so the co-ordination and cohesion of our policies is not there.
The Government needs to show the same political will to tackle the crisis that previous governments showed after World War II.
In response to the inquiry into housing by the Human Rights Commission the Housing Minister put out a statement saying that across Government a major programme of work is underway aimed at increasing the supply of public housing. More houses are being built than at any time since the 1970s. That the plan is working — it is on track for 18,000 new Kāinga Ora homes by 2024 (the count started in 2017).
In the decade to 1947 New Zealand was building social housing at a rate of 1.55 per thousand people, and in the decade to 1957 at a rate 1.73. In today’s terms that would be the same as building 7,750 to 8650 state houses per year.
Kainga Ora is currently building at a rate similar to the 1970s but that is not enough as it is only a third of the 1940s and 50s rate.
Bernard Hickey in his Dawn Chorus email newsletter argues the government is not, as the prime minister claims, ‘pulling all the levers’ it can for housing.
Stuff have an article titled Housing as a human right: those for and against where some people — including some politicians like David Seymour — argue that housing is not a human right.
Claiming housing is not a human right probably misreads the publics mood that has prevailed since the 2016 media coverage of families living in cars. It is quite clear the public believes access to decent housing is as much of a right as free healthcare, and free education for children.
The ‘have and have nots’ economy of the last 30 to 40 years has ruined the home owning chances of a generation. There are now large numbers of life-time renters. Renting in New Zealand is bad. Rental houses are lower quality than owner-occupier homes — they are more likely to be cold, mouldy, and damp to a health threatening degree. Rental households have very little security of tenure. It is common for life-time renters — including rental households with children — to move five, ten or more times while they are in the private sector rental market. Rents are expensive and for low-income earners — rent takes a higher proportion of income than anywhere else in the developed world.
The evidence supports Shamubeel Eaqub position — there needs to be a massive increase in the social housing build programme. Community housing providers or state housing should provide decent, affordable, long-term rentals to a much wider range of low-income households.
The Rack-Rent report suggests New Zealand adopts the Austrian social housing framework to achieve an expanded social housing build programme. A large increase in the state housing stock would also be a good policy response if there is a political consensus not to sell them (which I doubt there is).
If New Zealand doesn’t find creative ways to provide good quality, affordable homes, with security of tenure, for large groups of low- and modest-income earners, then this will push young workers with developing skills overseas, rental families with children will more easily slip into poverty, while greater numbers of older workers will retire without becoming mortgage-free which our system of retirement is premised on.
New Zealand’s housing conditions are similar to those resulting from the Great Depression and World War II and today’s housing crisis requires a response of similar scale.
There are many options for achieving this, for instance, the community housing sector if it wasn’t starved of capital could help increase the social housing build rate. In the Greater Auckland article — What if Landlords Built Hot New Things there were some general suggestions for improving the rate of house building.
New Zealand needs a new type of urbanism that delivers for the have nots rather than continuing with a rigged system that only benefits the haves.
I am sure many New Zealanders would love to live in a country that embraces a culture of house, community, and city building. Where there is an increased allocation of resources to build warm dry houses, inclusive communities, and functional cities. This is a vision that a majority could get behind.
In the future carbon-zero world, the built environment will be different. Buildings will be constructed differently without emitting carbon using engineered wood for example. Transport, energy, and many other factors will be different. These new directions can bring opportunities for rural, regional and urban areas. New Zealand should have confidence in its future.
I have collated the housing articles I have written since December 2020 into one extended series, titled — New Zealand’s Rack Rent Housing Crisis — if readers want a deep dive into this serious political-economic problem.
(1) Universal Declaration of Human Rights: Article 25 — Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.