Thinking big about housing

A guest blog post by Alan Johnson, discussing housing in New Zealand.

The Government does not acknowledge that there is a housing crisis. This denial is most likely for reasons of framing -once it admits the frame of a crisis it will then need to accept the blame for it.

But for the people on the right side of the ownership divide, the housing market is not a crisis but a bonanza. These people have seen the value of the residential property assets rise by more than 60% during the term of this Government and if they own property in Auckland it has almost doubled.

Another reason why the Government won’t acknowledge the housing crisis is because its supporters -the property investors, speculators, landlords, developers as well middle class baby boomers -have benefited hugely. Furthermore, these gains have more or less been tax free.

But now the Government has a two-fold problem. Firstly, homelessness is becoming more and more apparent; and secondly, New Zealanders are getting concerned about it. The Roy-Morgan public opinion poll has shown that the proportion of New Zealanders who identify housing as the most serious problem facing us rose from around 25% in mid-2016 to over 40% in early 2017. This rising concern coincided with TV3’s Mike Wesley Smith highlighting carpark homelessness in South Auckland, the Park-Up-for-Homes protests across New Zealand and TV3’s Lisa Owen breaking a story on slumlord Sanctuary Homes providing so-called emergency housing in garages and being funded by MSD.

Remarkably, Government’s policy stance has shifted as a consequence of this exposure and swing in public opinion. For some reason the social housing waiting list rose by more than 1000 between March and September 2016 and the amount being paid out in Special Needs Grants almost doubled between March 2016 and March 2017 to $30 million per quarter.

As well, the Government has scrambled to provide emergency housing -buying up motels in South Auckland and pledging almost $49 million for emergency housing responses in the 2017 Budget.

The 2017 Budget also promises significantly more in housing assistance. Subsidies for social housing, including funding for Housing New Zealand, are expected to rise almost 50% between 2016 and 2021 to $1.1 billion annually. Over the same period spending on the Accommodation Supplement will grow by $350 million annually to exceed $1.5 billion by 2021.

This increase in the Accommodation Supplement is really a catch-up for the failure to adjust the pay-out maximums for the past 10 years. This increase may however only provide temporary relief to benefit dependent households facing rapidly rising rents in the face of only nominal income increases. A great natural experiment is being established here where, by mid-2018, we will be able to see if higher Accommodation Supplement payments to tenants will leak away as higher rents and so confirm a common claim that the Supplement is really a landlord rather than tenant subsidy.

By 2020 the Government is planning to spend $700 million more per year on housing subsidies than it will this year. This is not insignificant although the increase next year is a more modest $141 million. Will this be sufficient to take the crisis narrative out of the headlines for the Government?

In an effort to quell the public’s concern about housing, the Government has gone on the offensive by throwing big numbers around -perhaps in the hope that it can create an impression that it is doing something. Social housing minister Amy Adams has claimed that the Government will build 34,000 houses in Auckland over the next decade, that it is providing capital spending of $100 million to do so and that it will increase the social housing stock from 66,000 to 72,000 units over the next three years. At best these claims are blindly hopeful, at worst intentionally deceitful and they deserve closer scrutiny.

Few New Zealanders understand the extent of our folly in allowing our housing market to become so bloated. The poor political leadership which has encouraged this predate John Key and Bill English and goes back at least to Michael Cullen and his disinterest in seriously taxing wealth as suggested by the Tax Review Working Group he set up in 2001.

Since Michael Cullen became the finance minister, in late 1999, housing related debt has grown from 65% of GDP and $72 billion to almost 100% of GDP and $264 billion.

Since Bill English became finance minister in late 2008 the wealth of New Zealand households has grown $520 billion with 72% of this increase coming from the housing market.

A 2015 wealth survey reported that tenant households held less than 8% of the wealth yet they made up 35% of all households. That same survey showed that one third of New Zealand households owned 82% of the wealth. Because wealth is so concentrated naturally the windfall gains from housing market appreciation have benefited a minority of New Zealanders who must of course be very happy with the current arrangements and so the current Government.

The big problem for this Government, and for the next three or four which follow, it is that the housing crisis has been at least ten years in the making and will be at least ten years in the solution. As well, there is no single solution and none which can have a significant impact within the term of the next government.

The clear and obvious answer is of course to build tens of thousands of new dwellings which are affordable to those who will live in them. The problem is where, how and by whom? The Labour Party’s Kiwi Build proposal of building an additional 100,000 affordable and social houses in ten years is the sort of bold ambition we need although to date there appears to be little serious thinking behind this ambition. Such a programme, if we are patient enough and serious about the financial commitment required, will be transformational -both for our cities and for the families which will be nurtured in safe, secure modern housing. This will be a truly nation-building venture of the scale and impact not seen since before Roger Douglas and David Lange rolled out neo-liberalism in 1984.

There are significant political and economic risks with a venture of this reach and scale not the least of which is the absence of any credible state agency to run it. But a deeper risk is around who will actually benefit from such a programme.

The current narrative around housing and the housing crisis has a dual focus. One part of this narrative is focusing on homelessness and the housing plight of beneficiaries and the working poor. The other part is focusing on the thwarted expectations of the young middle class who anticipate following the same housing career into home-ownership as their parents.

Labour’s housing plans are a little light on details around how many state and social houses it will build under the Kiwi Build programme. It instead would rather talk about affordable housing. In the recent past Labour has been the bastion of middle class welfare as with KiwiSaver, interest free students loans, Working for Families and early education subsidies which benefited those living in middle class suburbs the most. There is a risk here, in the Kiwi Build programme, that state housing in particular gets overlooked. This may perhaps be in the hope that a form of trickle down will work where-by pressure comes off in the private rental market as affordable housing is provided to first-time home buyers further up the income tree.

The priority should go to those most in need and this priority should be met through a concerted effort to build more state and other public housing in cities and towns with high housing demand. Those of us concerned for social justice should ensure that this message is not lost in the post-election fog created by clueless bureaucrats and careerist politicians.

Originally published at on June 24, 2017.

Trying to optimise amenity and affordability values for urban areas

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