Why the Sixth Labour Government Failed and the Implications for the Next Government
This paper is an expansion of my thoughts first articulated before the 2023 election in a paper titled — “Can NZ Governments Deliver on their Promises?”.
Part One — A review of Labour’s 2017 to 2023 performance
The Labour led government in 2017 had a mandate to reform the built environment. To change the Resource Management Act (RMA), and how transport, housing, and infrastructure systems are delivered. They had this mandate because the housing crisis was one of the publics top concerns going into the 2017 election.
Arguably so did the earlier National led government because John Key campaigned on housing affordability before the 2008 election.
But Labour did not deliver on its promises. Kiwibuild did not even achieve 5% of its 100,000 houses target, and Labour’s promise to build Auckland light rail evolved from an achievable surface level project from the city to the airport to a longer and more expensive underground line that did not even get one metre of track built.
Much of what was delivered there was a backlash against, such as, the three-water reforms, and the medium density residential standard amendment to the RMA.
Added to the backlashes and the undelivered promises there were compounding events like the Reserve Bank inflating the housing market in response to Covid.
All of this meant the public lost faith in Labour’s ability to deliver solutions for the issues they care about. There has been a clear observation that as the state’s ability to deliver has shrunk, so has the people’s willingness to vote.
The issue isn’t so much apathy or cynicism or even sheer ignorance. The issue is the state’s capacity to deliver.
Not delivering on campaign promises is likely to be the underlying cause of Labour’s declining public support and its 2023 election defeat. Governments get voted out rather than oppositions get voted in. Something the new National party led government will need to be mindful about because they campaigned hard on ‘cost-of-living’.
It is important that Labour reviews its overall strategy for the time it was in government from 2017 to 2023. As others have said it is time to be brutally honest about why Labour lost.
When Labour decided on how to tackle the housing crisis, choosing between a top-down versus bottom-up approach was a key strategic decision. They tried a top-down governance strategy to fulfil its “Let’s Do This” promise. It is not clear the decision makers at the time, or even now after the fact, are aware of the implications of their choice. But this choice determined the policy direction for how they managed their most important 2017 election promises.
Taking a top-down approach was not unprecedented — this strategy worked well in Japan to produce affordable housing. In the transport policy space Japan also had unique top-down solutions ensuring that city transport infrastructure was not subsidised which helps keep its cities affordable.
Yet the top-down governance structures New Zealand tried to implement were not as successful or as stable as Japan’s and are quite different to the bottom-up approach that many European countries have successfully used to provide affordable living costs (fully described in Part Two).
Because of the prolonged periods to gear up to build houses and construct infrastructure (longer than a typical New Zealand government lasts), a top-down approach to housing policy, the built environment, and infrastructure provision requires cross-party collaboration. This was initially achieved for planning reform with the Resource Management Act National Policy Statement on Urban Development (NPS-UD) and Medium Density Residential Standards (MDRS).
But cross-party collaboration was never achieved for the three-water infrastructure reform nor for rapid transit projects in Auckland (the light rail project) and in Wellington (Let’s Get Wellington Moving). Six months prior to the election Luxon withdrew National’s support for the MDRS. After the election, the National led government cancelled the new RMA legislation that Labour had passed in 2023 — the Spatial Planning Act and the Natural and Built Environment Act. This means New Zealand has returned to an older version of the RMA that both sides of the political spectrum have for many years said is flawed and needs to be replaced.
Important right wing campaign organisations, such as New Zealand Taxpayers Union campaigned to stop three-water reform and stop central planning committees (which is how they characterised Labour’s RMA reforms).
Top-down governance structures designed to improve public services are part of the Labour party’s DNA. The party’s most reforming period in government — the first Labour government of 1935 to 1949 successfully centralised power to create the modern social welfare system, the modern health system, and it raised the school age which massively expanded the education system with the modern high school structure, and so on.
Whereas improving local public services by creating bottom-up governance structures is uncharted territory for the Labour party. Creating these sort of governance arrangements has important implications for how sovereignty is viewed, the relationship between the Crown and Māori, and so forth. It is complicated and Labour stuck with what it knew.
Labour by choosing the top-down approach put its faith in centralising power to the professional management class (PMC) in Wellington. Whose implementation strategy was the standard game-plan that the professional management class always advocate for.
the centralisation of the state bureaucracy and the creation of high-income jobs for educated knowledge workers: lawyers, consultants, ICT, corporate communications and PR; endless layers of management.
The strategy did not work. Sure, visions were expressed. Systems changed. In the abstract world where the PMC exists there was a flurry of activity. Yet in the real world nothing changed. Real problems were not fixed.
For example, the road toll did not fall — the road-to-zero vision failed. Houses are still too expensive. Infrastructure is too expensive, and what infrastructure we do have is often of a third world standard.
What New Zealand’s infrastructure is like, can be described in crude terms by the following examples. Repeatedly there has been shit flowing down the streets of New Zealand’s capital city, and you have to boil water in New Zealand’s premier tourist town to not get the shits!
The reality is that local government and the public services they deliver are broken, and the centralised state in Wellington showed itself as incapable of riding to the rescue. This has profound consequences, if local government performance cannot be improved, and if it cannot be replaced, then ‘Let’s Do This’ type promises, such as, building 100,000 houses, constructing light rail, reducing the cost-of-living, and so on, cannot be delivered.
I think this means if a future New Zealand government genuinely wants to tackle the housing crisis, they will need to grow a growth coalition (fully described in Part Two). They will need to empower the local not the centre.
Labour needs a complete strategic rethink on how it delivers important campaign promises because in the end tactical Hipkins offering distractions like GST off fruit and vegetables was soundly beaten by strategic Luxon campaigning on the much broader issue of cost-of-living.
In summary for the Labour governments of 2017 to 2023, “Let’s Do This” failed, and “In It For You” was an insufficient replacement.
Part Two — What does a growth coalition mean?
An interesting US meta-study titled Growing the growth coalition looked at incentives on local government as the explanation for why they have implemented increasingly restrictive zoning requirements in recent decades.
There is plenty of evidence showing that when local and regional government are given better infrastructure funding tools, they form an alliance of all the relevant public and private systems to implement more pro house-building policies to quickly grow the housing stock — for instance, they voluntarily relax zoning requirements without being steam rolled into it.
The underlying idea of the growing the growth coalition concept is a social contract whereby the residents of a city and a region agree to allowing more houses to be built and having more people move into the area in exchange for better infrastructure or some other collective improvement. For example, better transport connectivity.
I would be deeply suspicious of a continuation of the top-down steam roller strategy with the likes of capacity assessments. For instance, National’s 30 years of zoned housing supply capacity will be subverted without wholesale reform to how local government funds infrastructure. The subversion process has already started.
The financial constraints on local government in New Zealand are such that they are forced to go on an infrastructure strike. Without infrastructure, new housing stock will be insufficiently supplied, and the housing crisis will worsen. This is especially significant when New Zealand’s immigration rate is such that the population of Dunedin is added to the country every year.
It should be obvious that if the various parts of New Zealand are getting a Dunedin level of population increase then they should have the revenue resources to build at least the amount of infrastructure that Dunedin has. The problem is central government does not share the revenue it gains from a growing population with the growing parts of New Zealand — the commonsense solution doesn’t seem to be agreeable to head office politicians.
It is possible that the National led coalition government will commit to forming growth coalitions with local and regional government as a strategy for achieving its cost-of-living promises. But it seems unlikely. This concept was not part of the government’s coalition agreements.
Talk of city and regional deals is just that. There are no agreed upon ‘city-deal’ policies in the coalition agreements with ACT or New Zealand First and there were no new local governance fiscal tools created for cities and regions to provide their own growth coalition, except for ACTs policy of central government sharing construction related GST with local government. National has only agreed to ‘consider it’.
Yet the new government’s taxation and spending promises are so tight there is no fiscal headroom to give any funding support to the growth coalition concept even if it wanted to. National will therefore politely reject ACTs sharing of GST with local government policy proposal because it has promised to prioritise tax cuts and repayment of debt instead.
Journalist Simon Wilson has written that the government implementing local government revenue reform so that deep-rooted infrastructure problems can be tackled is the single most important challenge for government relations with Auckland. Yet his calculations showed the chances of genuine infrastructure funding reform being implemented is remote because of the cost implications on central government finances.
This is unfortunate because a properly funded growth coalition would be the opposite of the vetocracy that currently reigns in the housing, RMA, transport, and infrastructure provision space.
The political scientist Francis Fukuyama believes the public gets despondent with the lack of progress that vetocracy causes which then leads to populism and authoritarianism. It would be my bet that the coalition partners will lean into populism and authoritarianism rather than doing the hard work to reform away the vetocracy. As Dame Anne Salmond states any society can be split apart.
My impression from National’s housing and infrastructure spokesperson — Chris Bishop — is that he would favour solutions whereby infrastructure pays for itself. This could be consistent with the growing the growth coalition approach. Yet it is doubtful that he has the genuine support from his party in this view. National may say the party position is that ‘infrastructure should pay for itself’, but the party’s actions in government show they don’t really believe in the concept.
The new coalition government is committed to using the consolidated fund — general tax revenue — to fund its transport promises, the next iteration of the Roads of National Significance. New transport infrastructure will not pay for itself — the general taxpayer will subsidise it.
And one of the Coalition government’s first actions was to dismantle Labour’s three water reforms and return the problem back to local government without detailing how local government will fund improvements in their water infrastructure — which remember are in a terrible state of repair. So, the inclination of local government to cooperate with any future growth coalition is likely to be worse not better.
Funding infrastructure is about ensuring existing infrastructure systems can firstly be adequately maintained and secondly be expanded in response to the various demands on the built environment (such as, population growth, economic change, and climate change adaptation). To understand the implications of expansion, an understanding of exponential mathematics is important. For instance, a population growth rate of 0.5% means a population doubling period of 140 years. While a growth rate of 1.5% has a doubling period of 47 years and a 2% rate has a doubling period of only 35 years.
Both Labour and National suffer from magical thinking according to business journalist Bernard Hickey the editor of The Kaka — they believe there is no problem with New Zealand’s population increasing by 1.5 to 2.0% per year for the last 20 years whilst infrastructure planning and funding is deep frozen at a rate of 0.5% growth. A level that obviously under predicts and under provides for New Zealand’s actual growth needs by ever increasing amounts. This means the country has inadequate infrastructure funding and a growing infrastructure deficit. Thus, explaining the often reported on poor water services, poor transport infrastructure, poor housing, and so on.
The infrastructure commission has a great little video looking at how New Zealanders pay for transport, electricity, water, and telecommunications services. This is part of an ongoing area of work for the commission. So, there is some investigation at the institutional level on different ways that infrastructure can be funded. But without a complete strategic overhaul the work will be too little, too late.
For transport and local infrastructure projects, I believe there are four hypothecated funding solutions.
1. Motor vehicle pays — what we currently use to fund the National Land Transport Fund (NLTF). And this system could be updated with better congestion charging, car parking fees, and road tolling.
In theory the NLTF funds the construction and maintenance of all roads designated as state highways and 50% of local road costs. The rest of the funding for the road network comes from local government ratepayers.
In practice new transport projects in New Zealand are not funded by hypothecated funding sources, such as the NLTF and local councils, because they have insufficient funds.
Instead, the 2008 to 2017 National led governments have used additional funding from the consolidated fund to pay $9.6 bn for the “Roads of National Significance” — which was a large subsidy to construct roads chosen for political reasons.
The last Labour led governments did something similar for a $12 bn scheme which they titled the “Infrastructure Upgrade Programme” (NZUP). The Auditor-General was critical of the decision-making processes around the former government’s infrastructure programmes.
“The process to identify projects and announce funding for NZUP projects took only a few months. Setting up the application process for the SRP took only weeks,” he said. It concerns me that significant decisions on the spending of public money continue to occur without appropriate processes for ensuring value for money and transparency. I think that Parliament and the public have a right to expect more for spending of this scale.”
The new National led Coalition government will continue the practice of using general tax revenue to fund the next generation of Roads of National Significance. It is notable that the poor processes that the Auditor- General criticised the previous government for using have not been changed by this current government.
2. Building construction pays. For example, central government shares construction related GST revenue with local government (ACT’s policy).
3. Land pays — better land value capture tools, such as targeted rates, or land readjustment as used in Japan.
Interestingly, some institutions have a hybrid of revenue sources. Such as, London’s City Bridge Foundation having both tolls and local land endowments which has fully funded all bridge construction and maintenance in London for the last 800 years. Currently it has enough funds in its endowment that it could replace any one of its Thames crossing bridges without requiring any external aid!
Land value capture techniques can be hard to explain and difficult to implement — it can be successful like the London and Japanese examples show. Yet in many cases they require extensive negotiation with existing landowners, and they can be difficult to apply in some situations — such as building new infrastructure through suburban areas. The earlier Labour government tried to use targeted rates to fund built environment infrastructure, but it generated little revenue, so this infrastructure funding tool did not make a significant difference to infrastructure supply.
4. Agglomerated clusters of people pay — in France for instance, there is regional transport taxes in bigger towns and cities. Roughly 1 cent in the euro of PAYE tax goes to regional transport providing entities, which are appointed by local or regional government. It is called Versement transport (VT).
Essentially this means the agglomeration gains from transport infrastructure that allows a greater number of people to be better connected raises incomes above what they would have been (and reduces living costs). A small, hypothecated tax on these better-connected people pays off the infrastructure that provides the improved transport connections.
See this link for the segment of the video that discusses how France used VT taxes to roll out light rail across an increasing number of large, medium, and small French cities. Pay particular attention to how in French cities workers are better connected to places of employment compared to similar sized cities in the neighbouring UK which does not have the VT infrastructure funding tool.
Urban economic research shows the more workplaces a worker can access in a given travel time is associated with higher levels of pay and productivity. This means agglomeration can pay for better infrastructure in a hypothecated manner. In the French example the higher local income that better connectivity provides will be boosting workers’ pay by more than the VT tax they incur, meaning local workers are better off than the alternative situation of not paying the local transport tax and not improving local transport connectivity.
It is noteworthy that over time there was demand for smaller French towns and cities to get this infrastructure funding tax and that even right-wing Mayors have campaigned on improving public transport for their city because of the economic benefits it brings. Also of note, better transport connectivity not only improves income it would lower living costs as it gives workers and local residents lower transport costs and more housing choices.
It is not surprising that French Majors, even its right-wing Majors are investing in public transport because something that urban theorists have found to be true — the Downs–Thomson paradox — states that the equilibrium speed of car traffic on a city road network is determined by the average door-to-door speed of equivalent journeys taken by public transport or the next best alternative.
In other words — it is often best practice to improve a road network by investing in alternative transport networks rather than investing in more roads because this frees up road movement. This is especially true for gridlocked towns and cities. The problem with building more roads is it induces demand for more road network usage, whilst potentially undermining the use of alternative networks, which combined can cause road congestion and slower travel speeds.
New Zealand has one hypothecated transport funding tool — charging motorists fuel taxes and road user fees that the NLTF collects to fund Waka Kotahi the New Zealand Transport Agency (NZTA). The NZTA’s funding mechanism and its long history of being a state highway building agency has given it a culture and expertise that primarily focuses on expanding the road network for motor vehicles. When redirected to other tasks by government policy statements, such as, road safety or building alternative transport networks it has struggled. For instance, it was unable to consistently lower the road toll despite being given $2.9 bn between 2021 and 2024 for the road to zero campaign.
New Zealand has no hypothecated funding tools for investing in alternative travel mode infrastructure, which is almost certainly poorly affecting travel connectivity. This is a flaw in the country’s institutional make-up, especially because the fix-it fudge is central government making politicised road building announcements.
New Zealand’s ad hoc infrastructure provision strategy is likely to be an underlying cause for the difficulties it has in delivering efficient low-cost project management for transport construction schemes.
Another point worth making in addition to growing the growth coalition strategy is when examining what a new strategy for the built environment could look like, New Zealand should look to examples from outside the English-speaking world. Because the English-speaking world has for decades under built housing and has the most expensive infrastructure costs.
Not only is the non-English speaking developed world better at building houses it has the significant advantage of creating more stable growth coalitions with better pipelines of infrastructure projects that have lower delivery costs. For example, France’s transit infrastructure building costs per km are one quarter of New Zealand’s costs.
Imagine how much transit infrastructure New Zealand could build if it had France’s cost structure and imagine how much housing supply this would unlock!
Part three: Poor infrastructure and poor housing policies are causing basic societal expectations to break down.
As discussed in the above first two parts, at the city and regional level the social contract — that being open to house building and people moving into the area will be rewarded with infrastructure improvements — is well and truly broken. Many decades of non-delivery of infrastructure mean very few New Zealanders are optimistic that the infrastructure conditions they experience in their day-to-day lives will get better. And they certainly do not believe that population growth will lead to better infrastructure — they probably believe it will make the situation worse.
This has important implications. New Zealand’s high inward migration rate is matched by a high outward migration rate, as the young and talented desperately search for better conditions elsewhere.
For many young New Zealanders, like their peers in other Anglo countries, the aspiration to have an independent life is a real struggle.
For the current generation of young adults, it is taking longer to save to buy a home. In places like London, without parental help the aspiration is simply impossible. Spending 30 years to save for a deposit on a London house is not a doable plan.
New Zealand’s most expensive cities, such as Auckland, have a similar problem. Meaning another basic societal expectation is failing — that if you study hard, get a good job, save your income, then you can own a home and live a decent life. Unfortunately for many this expectation is no longer valid — the costs have become too high, and the rewards are too little.
For New Zealand’s low-income households, who are dealing with the rental market rather than the first home buyers’ market, the unaffordable housing situation is even worse — they certainly cannot hope to save for home ownership, and despite working hard it is doubtful they are living a decent life, given the state of the rental market.
Statistics show for the bottom 20 per cent of households by income, housing costs as a proportion of income have increased from 29 per cent to 51 per cent since 1988.
How does a city like London or Auckland provide specialist services like healthcare if the cost-of-living equation of working in a city hospital is for most young people impossible to solve?
It is my contention that the discussed failing social expectations related to unaffordable housing is a large part of the explanation for why New Zealand has a shortage of essential workers — such as the well-publicised shortage of hospital workers.
While I contend for the private sector unaffordable housing has caused a breakdown in the reward for work equation and is a contributing factor to New Zealand’s poor productivity performance (see this story for a detailed description of the link between inelastic housing supply and poor productivity).
In conclusion
Clearly fixing the problems of New Zealand’s built environment — the planning system, infrastructure supply, the housing market, and so on are not easy or quick fixes. Our English-speaking peer countries are all struggling with the same issue — so these are deep-seated problems in need of serious reform. The impact of this failing is wide reaching — 85% of New Zealanders live in urban environments so fixing or not fixing the built environment has society wide implications.
Despite the importance of housing and improving the built environment I think the new National party led government is going to struggle to make progress in this policy area. Essentially all they have done is return the policy settings back to 2017 — they haven’t articulated a new vision. Politically they won the argument that Labour failed to ‘Let’s Do This’ so there hasn’t been much backlash from removing the progress the last Labour government did make. Yet the 2017 settings when National was last in government were not working. Doing the same thing and expecting something different is stupid.
The social breakdown problems discussed above will continue to worsen unless a strategic overhaul of the built environment is implemented. If the new government doesn’t do that. Then at some point — whether it be in 2026, 2029, or 2032 — there will be an opportunity for opposition parties to successfully campaign on improving the built environment.
For Labour, my advice now that they are in opposition is to do some serious policy work. Learn from the Kiwi Build disaster — it was classic New Zealand no.8 wire thinking. A high-risk unique solution that did not survive the rigors of implementation when an off-the-shelf strategy that has been tried and tested elsewhere would have been the better and safer choice.
Left-wing progressives should relearn the lesson that has been long known to social policy people that if housing is unaffordable, it is just about impossible to make progress on any other social issue. The solution is to build a lot more houses, all types of houses, as the — The Housing Crisis is the Everything Crisis — explains so well (H/T Chris Harris).
I would suggest that Labour do a “How better localism helps New Zealand” policy investigation. Something the size and scope of its two-year “Future of Work” project that it reported on in 2016. The party should have a look at localism from all directions — not just the ‘bottom-up’ housing and infrastructure paradigm that I have discussed in this piece. For instance. What would better localism mean for Māori? The Environment? Mental health? Social housing? And so on.
Labour should consider that making reforms to housing, infrastructure, and planning the built environment are consistent with their core values. That the fight for affordable cost-of-living dates back centuries and was a vital part of the fight for greater political rights. For instance, in the 1830s and 40s, British trade unions joined forces with progressives to campaign against the landed gentry to implement affordable food laws.
Finally, former Prime Minister Bill English after the election was interviewed about the different issues that the change in government has raised.
The last area which is a bit tangled and will be very challenging is around housing. If there isn’t progress on housing affordability, we will almost certainly end up with a wealth tax and a comprehensive capital gains tax because the people shut out of the market are not going to tolerate another round of house price growth where they are locked out just because of political settings around land and infrastructure. Bill English October 2023
Bill English’s rationale essentially being there would be a backlash if the societal expectation — that if you work hard, you should be able to live a decent life — was lost.
The paradoxical problem with Bill English’s speculation is that the infrastructure needed to supply affordable housing will not be possible without revenue reform. The easiest way to achieve that would be some form of wealth tax so that central government has the budgetary headroom to devolve some locally generated revenue to local government entities — whether that be ACTs sharing of GST with local government, or France’s small income tax to fund regional transport providing entities (VT tax), or some other similar scheme.
In my opinion, unaffordable housing might not cause New Zealand to get a wealth tax in the way that Bill English explains. The story might be bigger. A future wealth tax might create the opportunity to properly reform local infrastructure funding which will have a clear purpose of delivering affordable housing.
