The country’s largest trade union — The Public Service Association — says the ministry has informed staff that it is looking to shed 63 of 156 positions.

Opposition MPs have slammed the decision, which they say will undermine the delivery of services to Pasifika communities in New Zealand.

Labour MP and former deputy prime minister Carmel Sepuloni said it also reduced a Pasifika voice in the public sector.

“Our overriding concern is not only the impact on direct support from the delivery of services to communities, but also the equality of advice that would be offered across government agencies in areas such as health, housing or education,” Sepuloni said.

“We would have a thought that Pacific people should be a priority given the fact that many of the challenges in New Zealand at the moment disproportionately affect Pacific people.”

The slash is the latest proposal by government to cut staff across the public sector. Within the last week alone, the Ministry for Primary Industries and the Ministry of Health proposed cuts amounting to more than 400 positions.

Prime Minister Christopher Luxon said the cuts were needed to “right size” the public service.

Staff cuts had long been promoted by Luxon in order to fund a tax cut package.

“What’s happened here is that we’ve actually hired 14,000 more public servants and then on top of that, we’ve had a blowout of the consultants and contractor budget from $1.2 billion to $1.7 billion, and it’s gone up every year over the last five to six years,” Luxon said.

“And really what it speaks to is look, at the end we’re not getting good outcomes,” he added.

But critics say the cuts will only cause mass unemployment and undermine services needed across New Zealand. Public Sector Association national secretary Duane Leo said the cuts would have far-reaching consequences for the health and well-being of Pasifika families in Aotearoa.

“We know that Pasifika families are more likely to be in overcrowded unhealthy housing situations and challenging environments, and they’re also suffering from the current cost of living,” Leo said.

“The ministry plays an active role in supporting housing development, the creation of employment opportunities, supporting Pasifika languages cultures and identities, developing social enterprises — this all going to suffer.

“The government is after these savings to finance $3 billion worth of tax cuts to support landlords … why are they prioritising that when they could be funding services that New Zealanders rely on.”

The extent of staff cuts will be revealed next month when the New Zealand government is expected to announce its Budget on May 30.

Sepuloni said the massive cut indicated a move to get rid of the ministry, something that has long been promoted by Coalition partner — the ACT Party.

“We have to wonder if these are the first steps towards abolishing the Ministry,” Sepuloni said.

“It’s undermining the funding to an extent that it looks like they’re trying to make the ministry as ineffective as possible, and potentially justify what ACT has wanted from the beginning . . . which is to disestablish the ministry.”

In response to criticism about cuts to the Ministry of Pacific Peoples, Finance Minister Nicola Willis said all government agencies should be engaging with the Pacific community — not just the Ministry of Pacific Peoples.

Willis said the agency had grown significantly in recent years and a rethink was appropriate.

“It’s our expectation as a government that every agency engaged effectively with the Pacific community not just that ministry,” Willis said.

“We think the growth that has gone on in that ministry was excessive.”

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

Opposition National Party deputy leader Nicola Willis was among three political leaders who made a surprising commitment at a debate last night to build 1000 state houses in Auckland each year.

Labour Party leader and caretaker prime minister Chris Hipkins and Green Party co-leader Marama Davidson also agreed to do so, with resounding “yes” responses to the direct question from co-convenors Sister Margaret Martin of the Sisters of Mercy Wiri and Nik Naidu of the Whānau Community Centre and Hub.

All three political leaders also pledged to have quarterly consultations with a new community alliance formed to address Auckland’s housing and homeless crisis and other social issues.

The “non-political partisan” public rally at the Lesieli Tonga Auditorium in Favona — which included more than 500 attendees representing 45 community and social issues groups — was hosted by the new alliance Te Ohu Whakawhanaunga.

Filipina lawyer and co-chair of the meeting Nina Santos, of the YWCA, declared: “If we don’t have a seat at the table, it’s because we’re on the menu.”

Later, in an interview with RNZ Morning Report today, Santos said: “It was so great to see [the launch of Te Ohu] after four years in the making”.

‘People power’
“It was so good to see our allies, our villages and our communities — our 45 organisations — show up last night to demonstrate people power

“Te Ohu Whakawhanaunga is a broad-based alliance, the first of its kind in Tāmaki Makauarau. The members include Māori groups, women’s groups, unions and faith-based organisations.

“They have all came together to address issues that the city is facing — housing is a basic human right.”

She chaired the evening with Father Henry Rogo from Fiji, of the Diocese of Polynesia in NZ.

Speakers telling heart-rending stories included Dinah Timu, of E Tū union, about “decent work”, and Tayyaba Khan, Darwit Arshak and Eugene Velasco, who relating their experiences as migrants, former refugees and asylum seekers.

The crowd was also treated to performances by Burundian drummers, Colombian dancers and Te Whānau O Pātiki Kapahaka at Te Kura O Pātiki Rosebank School, all members of the new Te Ohu collective.

Writing in The New Zealand Herald today, journalist Simon Wilson reported:

“Hipkins told the crowd of about 500 . . . that he grew up in a state house built by the Labour government in the 1950s. ‘And I’m very proud that we are building more state houses today than at any time since the 1950s,’ he said.

“’Labour has exceeded the 1000 commitment. We’ve built 12,000 social house units since 2017, and 7000 of them have been in Tāmaki Makaurau. But there is more work to be done.’

“He reminded the audience that the last National government had sold state houses, not built them.

“Davidson said that housing was ‘a human right and a core public good’. The Greens’ commitment was greater than that of the other parties: it wanted to build 35,000 more public houses in the next five years, and resource the construction sector and the government’s state housing provider Kāinga Ora to get it done.

“’We will also put a cap on rent increases and introduce a minimum income guarantee, to lift people out of poverty.’

“Willis told the audience there were 2468 people on the state house waiting list in Auckland when Labour took office in 2017, and now there are 8175.

“’Here’s the thing. If you don’t like the result you’re getting, you don’t keep doing the same thing. We don’t think social housing should just be provided by Kāinga Ora. We want the Salvation Army, and Habitat for Humanity and other community housing providers to be much more involved.’

“Members of that sector were at the meeting and one confirmed the community housing sector is already building a substantial proportion of new social housing.”

Article by AsiaPacificReport.nz

In 1988, our National Housing Commission declared, “New Zealand does not have the huge, insoluble problems of homelessness and substandard housing which confront many other nations.”

This was the final report of the then disestablished commission, which to that point had reported detailed data every five years to keep the country and policy-makers informed about what we had once considered the foundation of stable society — a home for New Zealanders to call their own.

I was born six years after that report, and in those years and across my lifetime, deliberate political choices — specifically, political choices by people sitting in Parliament — have shredded that once-guaranteed housing dignity and stability.

They traded it for a game of Monopoly, which, the pecuniary interests register tells us, also happens to disproportionately benefit around half of the “representatives” in there with interests in more than one property (notably, approximately just 2 percent of the general population are landlords).

This dire situation is the direct consequence of political decisions, and it is disproportionately hurting the 1.4 million renters in this country that our Parliament, by majority, and as an overwhelming majority of comfortable homeowners, continues to structurally disempower.

In spite of this, we have made some slow progress. In 2017, the Greens worked with Labour to introduce Healthy Homes Standards and a slate of amendments to the Residential Tenancies Act, removing no-cause evictions and allowing renters to take claims to the Tenancy Tribunal anonymously.

Some standards, we obviously agreed, were better than nothing. A set of rules means it’s clear how a game should be played, but those rules become pretty meaningless if there’s no consistent referee monitoring and enforcing them.

Compliance not tracked
Unfortunately, that’s what the Healthy Homes Standards have become. My parliamentary written questions last year showed the government isn’t tracking how many private rentals are compliant.

It doesn’t know how many landlords and property managers have decided to self-exclude their properties from compliance. It has no tabs on the cottage industry of companies that have cropped up to verify these standards, let alone the variance in their approaches.

This leaves the third of New Zealanders who rent left to shoulder the burden of enforcing these basic rules which are supposed to protect them.

It’s a funny thing that whenever the Greens mention renters, we’re immediately shouted down and told that the problem is, somehow, that landlords aren’t given enough free rein. That the solution is more commodification of basic human rights.

Ironically, this is exactly what the National Housing Commission warned against back in 1988, that shifting of responsibility from the state to the private sector would, “add little to the total housing supply while allowing private landlords and property speculators to make even higher charges for a non-expanding supply of housing… rais[ing] the purchase price of land and rented property”.

We now know, viscerally, how right they were. Whatever metric you choose, we have the most expensive housing in the world.

The Accommodation Supplement, once rationalised in the state-housing sell-off to help support lower income New Zealanders pushed into the private sector, is now paid out to the tune of $2 billion a year with evidence showing it primarily serves to just bid up rental prices and effectively subsidise private landlords.

Special tax preferential
We remain one of the only countries in the developed world that continues to provide special tax treatment and preference to properties, incentivising the flow of capital into unproductive property speculation, or what University of Auckland researchers called, “a politically condoned, finance-fuelled casino”.

In less than 40 years, political decisions have not only made housing one of the major drivers of poverty and inequality in this country, but one of the major determinants of both physical and mental health, not to mention education achievement and school attendance.

So, who pays the cost?

Most immediately, it’s the 1.4 million renting New Zealanders, who Statistics New Zealand tells us spend more of their income on older, smaller, mouldier, lower quality housing.

Renting is no longer a transient state — unless you’re talking about the literal transience which sees renters in this country maintaining their tenancies for, on average, just 16 months at a time.

Almost all of us will know families with children and friends in their 30s and 40s who are flatting. A quarter of retirees don’t own their own home.

This didn’t happen overnight. It happened within a generation of political decisions that sold our human right to housing to the highest bidder.

As depressing as that may be, it makes clear that the status quo is not an inevitability. It can and must change if we want any hope of a fairer society.

The good news is the Greens have unveiled our plan to fix it all.

Chlöe Swarbrick is the Green Party MP for Auckland Central. This article was originally published in The New Zealand Herald and is republished here with the author’s permission.

Article by AsiaPacificReport.nz

A fortnight after the floods in Tāmaki Makaurau and as Aotearoa New Zealand braces for Cyclone Gabriel the reality is setting in for many.

Mother of four Kataraina Toka’s Mount Roskill home is yellow-stickered after being damaged by flooding on January 27.

For now, she is living in a two-bedroom hotel room in Onehunga.

“We’re getting there. It’s hard, it sucks you know being cooped up in somewhere so small with four kids. But better than not having a roof over our heads at all I suppose.”

Toka is looking for a new rental home but like many others is struggling.

“If you think it was bad before, it’s worse now. It’s hard, especially when you know you’ve lost all your ID because somebody dropped their phone in the water or we’ve got no car to get around so it’s just making it to where we can.

“But we’re just grateful for the support that we’ve got.”

Displaced whānau
Māori health provider Waipareira Trust has been helping many whānau in West Tāmaki who have been displaced.

Management lead Jole Thomson said one family in particular stood out.

“Their house was one of the first ones to be red stickered — it was destroyed. Kuia, kaumātua, and they’ve got care and custody over their mokopuna who has special needs and house concerns.

“They’re getting kicked out, basically, of their emergency accommodation.”

Other whānau stayed at schools such as Mount Roskill’s Wesley Primary School which was turned into an evacuation centre when the floods hit.

But some tamariki haven’t been able to return to kura.

Wesley School principal Lou Reddy has noticed the absence of some of his students.

High-risk situation
“We’ve got six that we know are in that high-risk situation where they lost their car, lost their home, are in a temporary housing situation and we haven’t been able to get them here.

“The others, there’s 10 that we haven’t been able to get a hold of at all.”

Thomson said that was a common situation, with some whānau no longer having the resources they need.

“We’re working with a number of whānau, helping them pay for things like school uniforms and a lot of that we’re supporting, they don’t want help. I was watching people trying to dry school shoes so the kids could wear them to school.

“But they’d been destroyed, they had been in raw sewage.”

The Ark Project in Mt Roskill, which works to assist vulnerable families, was a massive part of the evacuation effort and organisers estimate it helped more than 5000 people with kai parcels.

Barely anything left
Co-ordinator Peter Leilua said each day they started off with plenty of supplies but by the end there was barely anything left.

The team did not have enough resources to keep providing for whānau, he said.

“That’s our biggest push to the government, Ark needs a lot of that support, because in our community and Wesley, Puketāpapa, Mount Roskill, we got hit the most.

Many families were being placed temporary accommodation some distance from their community.

“It’s not just around the corner. They’re placing them at Greenlane, Onehunga, some are out South or East and that’s just too far for them to travel,” Leilua said.

Damage from the flooding has extended beyond financial and material loss.

Thomson said whānau have had to throw away taonga or family treasures.

“The photo albums, the whānau heirlooms, the korowai that have been handed down for generations just absolutely destroyed and that’s heartbreaking for whānau.

“Ashes, you know whānau not knowing how to manage those sorts of things, the remains of their loved ones,” Thomson said.

While whānau such Kataraina Toka’s continue to try to rebuild, many know they’ve got a long journey ahead.

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

Well, no one saw that coming. For those in New Zealand relieved that Christmas was over because it means politics resumes, this week held the promise of a cabinet reshuffle, the possible unveiling of some meaty new policy and — if we were really lucky — the announcement of the date of this year’s general election.

We got the last of these (it will be on October 14). What we also got, however, was the announcement that in three weeks’ time one of the most popular — and powerful — prime ministers in recent New Zealand history will be stepping down.

It isn’t difficult to divine why Jacinda Ardern has reached her decision. As she herself put it:

I believe that leading a country is the most privileged job anyone could ever have but also one of the more challenging. You cannot and should not do it unless you have a full tank plus a bit in reserve for those unexpected challenges.

She has had more than her fair share of such challenges: a domestic terror attack in Christchurch, a major natural disaster at Whakaari-White Island, a global pandemic and, most recently, a cost-of-living crisis.

On top of that, of course, she has had to chart a way through the usual slate of policy issues that have bedevilled governments for decades in this country, including the cost of housing, child poverty, inequality and the climate crisis.

Clearly, the Ardern tank is empty.

But it isn’t just about the policy. Along with other women politicians, Ardern faces a constant barrage of online and in-person abuse — from anti-vaxxers, misogynists and sundry others who simply don’t like her.

As others with direct experience of this have written, the deterioration in civic discourse in New Zealand has been profound and disturbing, especially since the violent occupation of the parliamentary precinct in early 2022.

🔴 #BREAKING: New Zealand Prime Minister Jacinda Ardern will not seek re-election and has revealed the date she will stand down https://t.co/UET5ZoszD1 #Newshub pic.twitter.com/fPAROdI5l2

— Newshub (@NewshubNZ) January 19, 2023

Ardern has spent the past two years right on the frontline of this sort of toxicity. This has taken a toll — on her, on her family, on those close to her — and has played a part in her decision.

A tale of two legacies
In time, however, what people will remember most about Ardern’s term in office is the manner of her response to serious crises. She has faced more than any other New Zealand prime minister in recent history and, in the main, has responded with calmness, dignity and clarity.

There are always competing points of view on these matters, of course. But her refusal to engage in the rhetoric of abuse or disparagement (her recent reference in Parliament to an opposition MP as an “arrogant prick” aside), which has become the stock-in-trade of too many elected representatives, has marked her out in a world in which abuse has become normalised in politics.

Critics may deride this as “mere performance”. But politics is — above all else — a matter of controlling the narrative. And for a long time Ardern and her team were very good at this.

That said, there is plenty she hasn’t achieved. She came to power promising transformation, but inequality and poverty remain weeping sores on the body politic.

Her Labour government has not been able to alleviate the chronic shortage of public housing that has existed for many years, and workforces in public health, education and construction face challenges no future government will relish.

No obvious successor
Attention now turns to Labour’s leadership and the party’s caucus vote this Sunday. A majority of 60 percent plus one more vote is required to secure the position, and Labour will be hoping this is what happens.

If not, the party’s constitution requires it to establish an electoral college comprising the caucus (which gets 40 percent of the total vote), the wider party membership (40 percent) and affiliate members (20 percent). This would be time-consuming, potentially divisive and a distraction.

Look for a clear-cut decision to be announced on Sunday.

The other big surprise has been Finance Minister and Ardern’s deputy Grant Robertson ruling himself out of the contest. Many people assumed he was the logical successor, but his decision opens the field wide.

Even including Ardern’s inner circle of David Parker, Chris Hipkins and Megan Woods, the bench is not that deep, and none of the candidates has anything like Ardern’s wattage. The shoes needing filling are on the large side of big.

Australian PM Anthony Albanese said she has “shown the world how to lead with intellect and strength”. https://t.co/Mkg8u82vxL

— Stuff (@NZStuff) January 19, 2023

Mixed news for National
Unsurprisingly, Ardern’s announcement has dominated the news cycle in New Zealand, leaving no room for consideration of another important event this week — the National Party’s first caucus of the year.

One might imagine that on hearing news of Ardern’s resignation there might have been jubilation in some sections of the party. Labour’s polling has been falling for some time now, while support for centre-right parties National and ACT has been climbing.

Ardern is still significantly more popular than National’s leader, Christopher Luxon, and he will likely be quietly pleased he won’t have to face Ardern on the campaign trail. She was good at that stuff; he is still learning.

National will be thinking, too, that some of the support for Labour that is tied to Ardern herself — including the support Labour received in 2020 from people who habitually vote for National — can now be peeled off and brought home.

Wider National heads will counsel caution, however. As the covid years have rolled by, Ardern has become an increasingly polarising figure.

By stepping aside now she gives her party plenty of time to instal a new leadership group that can draw a line under the past three years and focus on the future.

It is far too soon to tell, of course, if the country will buy a new narrative in which Ardern is not the key character. But she is giving Labour every chance of having a decent crack at it.

Leaving on her own terms
Are there broader lessons in all of this for international audiences? Depressingly, perhaps the key one concerns the price paid by elected representatives in these times of polarisation and the normalisation of abuse.

Around the world, women politicians in particular have borne the brunt of the toxicity and there are many who will see in Ardern’s departure a silencing of a woman’s voice.

On the upside, perhaps there are also things to be learned about the exercise of political leadership. Ardern has chosen the time and manner of her leaving — she has not lost the position because of internal ructions or because of an election loss.

Her reputation will be burnished as a result, and if anything it will generate even more political capital for her — although whether or not she chooses to distribute that currency on the international stage remains unclear. But you rather suspect she might at some point.

For now, though, she will be looking forward to walking her child to school and finally being able to marry her long-term partner. After a tumultuous and more-than-testing time in office, that may yet be reward enough.

Dr Richard Shaw is professor of politics, Massey University. This article is republished from The Conversation under a Creative Commons licence. Read the original article.

Article by AsiaPacificReport.nz

Nearly 40 percent of Pacific people in Aotearoa New Zealand live in crowded homes — almost four times that of the general population, according to a new report.

The report by Statistics New Zealand was based on data from the 2018 Census, which showed 39 percent lived in a home that required additional bedrooms for the number of people living in it, which shows no progress has been made since 2013.

The data showed nearly 60 percent of households with Pacific people had more than five residents. But with more than 65 percent of Pacific people living in rented homes, just 4 percent of rented homes had five or more bedrooms.

An organisation supporting Pacific families said, while intergenerational living and big households are not new to the Pacific community, there was an urgent need to support people suffering from the negative impacts of overcrowded living.

The Fono’s spokesperson Frank Koloi said during the pandemic, large Pacific families were already straining from the pressures of looking after visiting relatives stranded in the lockdowns.

He said the unaffordability of homes and the rising cost of living is another blow to intergenerational households struggling to get by.

Koloi said there were a range of other issues typically seen in crowded homes.

‘Truancy in schools’
“From truancy in schools, family violence … the current outbreak of measles and rheumatic fever is still prominent within Pacific families in south Auckland,” he said.

“So there’s a real need to address the overcrowded homes in terms of resourcing these families.”

Koloi said the Fono was supporting these families with wrap-around services, including budgeting advice, supporting kids going back to school and helping people into higher paying jobs through upskilling.

Stats NZ’s wellbeing and housing statistics manager Sarah Drake said the current growing Pacific population was often unsupported, particularly in large urban areas like Auckland — where even unsuitable housing can be unaffordable to rent or own.

The data also showed more than half of people living in crowded homes had a problem with damp, cold, mould, or needed major repairs.

Stats NZ’s principal analyst of census insights, Rosemary Goodyear, said they would like to see more people from the Pacific community do the Census this year so that their circumstances and voices could be heard.

In 2018, just 35 percent of Pacific peoples lived in owner-occupied homes, compared with 64 percent of the total population.

The homelessness rate for Pacific peoples was 578 people per 10,000 — more than double that of the general population.

This article is republished under a community partnership agreement with RNZ. 

Article by AsiaPacificReport.nz

A new $100 million apartment complex is coming to Manukau — Auckland’s heart of Pacific communities.

But you’ll have to be aged at least 55 to get in.

Kāinga Ora is expected to start construction of the 123 apartments in Osterley Way in March. The 16-storey tower will include 94 one-bedroom and 29 two-bedroom apartments.

The government said it was necessary to target targeting specific age groups to match an increasing demand from “older customers”.

“Kāinga Ora recognises our older customers have specific housing needs, which we are addressing through senior housing developments such as the proposed project in Manukau,” regional director for Counties Manukau Angela Pearce said.

Pearce said one in five of the agency’s homes in Counties-Manukau had someone over 65 living in it, while 670 of its homes in the area were occupied by sole tenants in the same age group.

“With an aging population, Kāinga Ora recognises the importance of dedicated senior housing where our older tenants can live well, feel safe and secure, both in their homes and the community.”

Two years on state house list
Maureen O’Meara, 75, spent two years on the state house waiting list and was renting a two-bedroom unit in Pakuranga for $420 a week until earlier this year.

“I had $17 left a week after paying the rent,” O’Meara said. “Being on a pension and paying market rent meant I didn’t have a lot of money left to live on.”

O’Meara managed to find somewhere more affordable in May after she was put in touch with Haumaru Housing, a joint venture between Auckland Council and the Selwyn Foundation.

But O’Meara said the Manukau development reflects an increasing number of people reaching retirement without a home.

“And I think there’s going to be a need for more places like it,” she said.

Age Concern Auckland chief executive Kevin Lamb said it’s important the development was close to public transport and community facilities.

“We think it’s high time older people had accommodation that is new and more appropriate for their needs.”

Big part of pension on housing
Recently-released research by Te Ara Ahunga Ora Retirement Commission showed superannuitants still paying rent were more likely to be spending 40 percent or more of their pension on housing.

While long-term trends suggest more older New Zealanders are likely to still be renting in their retirement.

Te Ara Ahunga Ora director of policy Dr Suzy Morrissey said with declining home ownership rates there was a growing need for public housing and accommodation for those aged 55 and over.

“When NZ Super was introduced, it was with the underlying assumption that those accessing it would be mortgage-free homeowners,” she said.

“Today, the reality is very different. There are declining home ownership rates, more people needing to continue working longer because they still have mortgages to pay, are paying rent, or haven’t been able to save enough to retire.”

• Auckland is currently in the middle of the local body elections with a Pacific candidate, Fa’anānā Efeso Collins, one of the two top contenders for mayor of the super city.

Article by AsiaPacificReport.nz

Deception and political spin crossed new boundaries this week with Prime Minister Jacinda Ardern, under pressure to explain the housing catastrophe in Rotorua, making the absurd statement:

“Our long-term plan is to get them into sustainable, long-term safe housing. It’s why for instance we’ve worked so hard to now have built 10 percent of all the state houses in New Zealand.”

Meaningless, ludicrous and irrelevant.

Why was she not challenged by journalists on this preposterous statement?

The government has been demolishing state houses almost as fast as it builds them so that the net increase in state houses over the last five years stands at a piddling 1100 per year for a waiting list of 26,664. The waiting list has increased five-fold since Labour came to power in 2017.

Labour is taking us backwards on state housing at a spectacular rate.

And neither is it the fault of the previous National government. Labour has kept the policy settings for state house building the same as applied under National — right down to maintaining the same tough criteria to enable a low-income tenant or family to get on the waiting list.

Largest Labour privatisation since 1980s
The awful reason Labour is demolishing state houses and selling the land is to provide funding for Kainga Ora. The government doesn’t want to borrow to build, which any sensible government would, so it is forcing Kainga Ora to sell land and properties to do this.

It’s the largest privatisation of state assets by Labour since the 1980s.

Where are the journalists to put some simple questions to the Prime Minister?

• Why has Labour allowed the state house waiting list to INCREASE FIVE FOLD (from 5,000 in late 2017 to over 26,000 in 2022) with no effective policy response?
• Why does Labour still think it’s OK to produce just 1,100 net new state houses per year for a state house waiting list of over 26,000? (When Labour came to power there were 63,209 state houses which has increased to just 68,765 by June this year).
• Why are the number of children living in grotty motels STILL INCREASING?
• Why is the number of children living in cars STILL INCREASING?
• Why are the number of children in tents STILL INCREASING?
• Why is Labour still ONLY FUNDING 1600 new IRRS places (for state house and social housing providers combined) each year for the more than 26,000 families on the state house waiting list?
• Why does Labour still think it’s OK to keep the proportion of state house at just 3.6% of total housing stock when it was 5.4 percent in 1990?
• Why has Labour not instigated an industrial-scale state house building programme such as the first Labour government did in the 1930s? (Labour then built 3500 state houses each year – equivalent to 10,000 today on a population basis).
• Why is the government planning to sell 55 to 60 percent of crown land in Auckland to private property developers when we have a housing catastrophe for low-income New Zealanders?

Where are the journalists to expose this prime ministerial spin?

Republished from The Daily Blog with permission.

Article by AsiaPacificReport.nz

***

SPECIAL REPORT AND ANALYSIS – by Stephen Minto.

Housing affordability is more than a simple case of demand and supply; there are structural factors creating too much investor demand for residential housing.  Because of this, New Zealand can’t just build its way out of this crisis. And removing planning restrictions will delay intensification and the supply of affordable housing, the exact opposite of what its proponents claim. The structural forces, in which the property market functions, must be fixed.

To see this we need to understand three things:

1. How we got here, and where here is.
2. Our current trends and economic forces.
3. What direction do we want to go in and how (possible solutions).

Part 1: How we got to this crisis – the NZ economy is a one trick pony; residential housing

We all know:

• The ‘normal principles of taxation’ favour holding a relatively low-effort, non-productive asset – residential property. Especially because you could claim the mortgage interest paid as an expense.
• There was no capital gains tax.
• The banks want to lend on leveraged property as a relatively secure loan. They are risk adverse.
• You can have a holiday home and rent it out occasionally as a pretend business to subsidise having it.
• Huge tourism to New Zealand along with AirBNB and ‘bookabach’ etc have given a lucrative income stream in the short-term rental market.
• Mum and dad savers/investors learnt from the 1987, 1998, and 2008 economic crashes that property was the best at retaining its value.
• The renters pay your mortgage, so there is little drain on your ‘income’ or there is positive enhancement from rental losses.
• New Zealand has had positive migration flows.

All these factors have been in place for many years making residential housing a fantastic investment, or superannuation scheme, or wealth–gain mechanism. It’s not clever to invest in residential property, it’s stupid not to.

But wait there’s more – the neo-liberal economic crisis

Commentators don’t talk about the neo-liberal structural changes in New Zealand and other first world economies from 1980 that have collapsed alternative investment opportunities.

The world economy was opened up on the mistaken belief that the great growth years of capitalism were made in an environment of little regulation and tax. A mantra to free up the private suppliers of goods and services (supply side economics) from laws, labour, and taxes was said to lead to an economic boom.

We all know there has been no boom for working or middle class people. There has been a boom for financial capitalism, technology, and billionaires.

What happened was skilled manufacturing and industrial jobs were exported to countries like China, Vietnam, and India. Many high income jobs evaporated in New Zealand leading to fewer people being able to save house deposits or save capital to start a business. Yes we got lower cost imports to match lower incomes, but we also got a throw away society with so much rubbish brought in.

Also, lower taxes and a smaller government meant the main source of apprenticeships, from Ministry of Works, Railways, Defence etc., dried up, leaving New Zealand small businesses without a source of trained and qualified people. They now had  to pay to train them. We now have to import skilled people. We have fewer skilled people to build houses. Fewer apprenticeships means fewer people to set up their own businesses meaning fewer opportunities for those wanting to strike out on their own. Fewer new businesses means fewer medium-sized businesses, which could be an investment option for those wanting to invest.

The above reality is compounded due to the absence of a capital gains tax as business owners have an incentive to take an easy-life option and sell up to overseas buyers. These overseas owners contribute tax and labour costs but they often do their best to avoid these. Businesses listed on the sharemarket are often sold overseas and pulled out of our sharemarket. We now have a thin share market. Profits from New Zealand assets are exported overseas. Most investment capital is not being invested back into growing the New Zealand economy, instead huge amounts of New Zealand’s investment capital is going to non-productive assets, such as residential property. These are all structural problems significantly damaging the ability of the New Zealand economy to grow.

New Zealand is now a service based economy but business set-ups in New Zealand are often for overseas franchises with low margins and wages. In fast food our small shop owners struggle. Retail as a business model is struggling because consumers have less disposable income because of high rents. High rents, and other utilities like power, suck money out of other areas of the economy. Our overall economy is being damaged by being skewed to the non-productive asset, residential property.

This is where the New Zealand economy is today; there is almost nowhere in New Zealand to invest except in residential property. Neo-liberal policies have shrunk our domestic economy and removed opportunities for investment. Entrepreneurs are risk averse – they minimise risk and buy property.

Is there a property bubble?

Yes. High house prices mean loans are beyond the ability of borrowers to ever repay. But that is still profitable for banks. The loans help push house prices higher, which rewards investment in property, and so it continues. But like the 25 July 2021 Radio NZ article ‘The problem with economists forecasts’, many have predicted a bubble burst but all have failed. Why? It’s obvious. The structural problems and incentives to buy residential housing are all still in place. Where else can the investors go? The economic signals from a dysfunctional economy trap investors in residential property. (ref. Radio New Zealand; July 25, 2021)

The property bubble can’t deflate until there is a functioning economy with alternative low-risk options for investment.

There are ways out of this, which is covered in Part 4 of this four part series.

Part 2: The current trends and economic forces shaping housing affordability

New Zealand can’t just build its way out of the affordable housing crisis. Previously I noted the ‘normal principles of taxation’ and the legacy of the neo-liberal experiment are skewing the economy to trap investors into holding residential housing as investments.  This part looks at the recent developing economic trends that now trap middle and working class people into renting for life and why that is bad for our economy.

Trends – big business residential renting

The New Zealand situation sits along with a trend in the United States where large corporations, e.g. the Koch brothers, have been investing in new rental properties because the returns on rentals are so strong. This is because house prices in the US, like NZ, are high. This shuts out most young middle- and working-class buyers. These people then become a captive market of renters as they are wealthy enough to pay high rents. And the high rents in turn make it almost impossible for renters to save a deposit to buy a home, and the captivity continues. The returns and prospects for business are great.

Over time, the rental investor market is moving away from mum and dad investors as they surrender their houses to pay for retirement homes or to release capital to live comfortably. Big business will take up a lot of that divestment; they can leverage far more and so are able to pay and sustain high prices for residential houses. They will also be buyers of older homes to redevelop into more ‘productive’ new builds. Banks will feel secure to lend to a large business with captive renters.

This means the future of housing is evolving into a big business ‘build to rent’ model, which means not ‘generation rent’ but ‘generations of rent’.

And this is bad for the economy. One of the ways it is bad is it leaves people with little capital to borrow against to take up a business option. It traps people as employees. And people renting won’t be able to build equity because there are fewer other investments options and those other options aren’t performing as well as residential property because all the investment capital to grow those other options is being sucked into residential property. And the chances of saving to build equity are low because rents are high. More reasons are given in the next trend (see below).

Some governments have also undermined social housing, which has exacerbated the problem, but that failure did not create the affordable housing crisis.

At this point, some people who own lots of properties will say, ‘So what?’

• Nothing is wrong with people renting.
• Nothing is wrong with high rent if the market is willing to pay it.
• The critics are all anti-business.

My response is this:

• Yes, it is wrong if there is no choice.
• People are not willing to pay high rents – they have to pay them.
• Redirecting investment to the productive economy (exports, innovation, producing goods and services) is good for business.

All businesses will benefit from a shift to investment in the productive economy except the types of business based on highly leveraged rental property. The property investor landlords that are not based on highly leveraged property will carry on renting.

Trends – high price houses and rents are here to stay.

In theory, increasing housing supply will bring down house prices, but that is not so in the economy we have.

For renters, the high prices paid for housing purchases are used to justify charging high rents. Also, big business is very keen on making sure there is a good rate of return on capital, so there’s an incentive to keep rents high.

Supply of housing and the rental price is not really linked. Pricing is about how much ‘consumer surplus’ the seller believes they can extract. It is not about the costs of the business so much as what they think the renter can pay e.g. linked to area, what others are charging in that area for that size of house. What the renter thinks the rent should be is not really relevant. Business costs do not really matter for price e.g. as a landlord pays down their mortgage on a rental property they do not reduce the rent on the property. Cost and supply do not drive rent prices.

The easiest example to see how supply and price is not linked is the car market (used and new). There are a huge number of cars in New Zealand and it is presented to the consumer as a myriad of choices about car style and performance, ‘why do you want the car?’. Each choice means it becomes a smaller range of cars to choose from. Every ‘extra’ feature is a way to distinguish one car from the hundreds of other cars; to push price up, or help hold it up.  This is what will happen with the housing market. The business model market will have a deliberate desire to push choice and variety up to push, or keep, the price up.

So for the ‘build to rent’ business model we will see tiny studio apartments marketed as the affordable option, which really primarily just suits a very young guy on his own, or short-term stays. As the size increases it will exponentially get more expensive. The business model will run that tried and true for-profit strategy. They will start organising your loans to make the purchase so they can get a commission.

Supply is only one of the many factors (e.g. location, quality, number of rooms), to set a rental price. Too many people are talking as if supply will fix the problem of affordability and this is a mistake. For example, a ‘tradie’ did a job at a rental house (almost $700 a week for a whole house in an outer suburb) there were several people home (a Polynesian extended family) and the rental owner, in casual conversation with the tradie, said as there were more people in the house than they thought, they would raise the rent, i.e. they can charge more. This is an insight to price setting. The idea, that people can just go somewhere else if rents rise, is silly. People want continuity with where they live, especially if they have children at schools. Also, demand to rent a property would generally be seen as inelastic, i.e. you need a place to live so you have to pay what is asked for. If you negotiate a rent reduction it tends to be by quite small amounts. (I’m sure there are anecdotes of some large reductions but clearly that is not the norm from the Trade me site or as renters report).

This shows cost, and supply, is not what primarily drives rent prices and this business model will work counter to the government’s, and most voters’ objectives, of ensuring there is affordable housing for our families, children and grandchildren.

Trend – a business ownership model versus a home ownership model

Residential housing is currently being repurposed into a very strong and profitable business model either with long term renting, or short term renting (Airbnb, book a bach etc) for tourism – when tourism returns – the previous model being high levels of home ownership. These business models will further push out home buyers unless they can pay a very high price. Therefore an affordable housing shortage will persist due to New Zealand’s lack of building resource capacity and a positive net migration. This is the nature of the private market and it has already shown it can’t deliver affordable housing. It needs a push, and help, to deliver affordable housing.

With a move to big business running more rentals, the chances of rents being lowered by supply are slimmer than if it was lots of mum and dads running the rental market. A large business will hold many properties and can carry empty property more easily as tax deductions can still be made against the property. High rents on some properties can cover for vacant periods on other properties.

Also the concept of ‘affordable’ is a monetary concept but housing is a qualitative experience. The economic/profit drive for business will be what is market ‘affordable‘ – e.g. those apartments that are south facing and that do not get any direct light, or they look onto a concrete wall. More planning rather than less will be needed to avoid these sort of outcomes.

The private rental market is not conducive to lower rents. For example, one rental comes onto the market and the fact that 10 or 100 people applied for that one new flat is taken as a signal to all the other people holding rentals (with that rental service company) to raise the prices on their other rentals. The private market tends to quickly inflate the impacts of scarcity. But when one rental takes a long time to rent there is no rush to drop their prices on their other rental properties. Private markets tend to hold prices high. So housing supply, if held in the private business model market, will not necessarily bring down rental prices. Anecdotally, I am personally aware of many houses in New Zealand’s capital city Wellington, that are not occupied. Ideally, this housing stock would be used for housing supply if done up, restored, renovated, or simply rented out. Some supply currently exists but is not being utilised. This is the scourge of land banking.

Rents are high now and deflation is only generally associated with economic crashes. There is nothing identifiable yet that would indicate rental prices will decrease. The whole discussion, about increasing the supply being the solution to the housing affordability crisis, is just magic thinking. If left alone, the economic forces at work will prevent increasing supply being able to have a positive impact.

Former BNZ economist (and now an independent economist) Tony Alexander made a point in a NZME bulletin that getting tough on landlords will just drive up rental prices. However, I argue, prices not quality have been rising anyway. Therefore, now is the perfect time to remove interest deductibility from residential rental property, particularly as interest rates are currently low. Nobody is getting tough on landlords, rather investor demand is being dampened and investment capital gently directed away to the productive economy. (ref. Youtube, NZHerald.co.nz; March 1, 2021)

I repeat increased supply and intensification definitely needs to happen but it is not going to launch a huge reduction in house prices or rent as the forces driving investor demand will still be in place. And supply is still a long way off.

But there are things that can be done to free renters and house buyers from high prices by making the market work better. See solutions in Part 4 of this four part series.

Trend – Government as the good quality high paying tenant

The outlook for investors in the rental business is getting even better if rent is made to beneficiaries as the rents are paid direct to the landlord by the government. If there is an overloaded or not properly funded bureaucracy any complaints about the quality of the rental may be slow for the government to follow up on, but the rent continues to be passed through directly to landlords. Business loves it as it is a very secure income stream. If government has to pay repairs for damage it may be a more reliable payer than a private tenant.

On rental price settings that impact government, it was strongly anecdotally reported that with the Government’s first budget, where the accomodation allowance was raised by $50 a person, rents increased correspondingly. This showed the rental business market’s true colours. The rental rise was not based on costs but on the ability to extract the money as the government had declared it available. This shows the government therefore will become trapped in a cycle of paying for high rents by leaving so much of the rental market in this growing private business model.

Trend – business model housing is bad for the economy.

This is bad for the New Zealand economy. High rents, or mortgages (and for other utilities) means less disposable income for renters/mortgagees which leads to less stimulus into the rest of the economy. More disposable income could mean more people seek education, experience the arts, take up exercise, domestic travel, etc. All these are NZ based service industries that are struggling at the moment. But landlords in particular have a captive inelastic market where they can continue to raise rental prices even though interest rates are at a record low.

As said before, high house or rental prices prevent/slows people developing capital on which to create a business opportunity and/or push an innovation they may have developed.

As bad if not worse is the diversion of so much of New Zealand’s investment capital into a non-productive asset, residential housing. We need that investment capital to go into innovation projects and/or producing things for export, or for the services industries that our economy employs most of our people in. The housing market, built on a business model, is not a service industry we want to encourage.

And once the ‘build to rent’ companies take over and they are big enough they might list on the stock market and then the chances of it being sold overseas – with all the rental profits going overseas – becomes very real.

New Zealand will not get wealthy selling houses to each other.

No business representative group should be upset about this redirection of investment into the productive sector of the economy. It will benefit most businesses. It is only those rental businesses built on being highly debt leveraged that will have to change.

There are solutions to high housing prices and the affordability crisis outside a big business rental model, I talk about some solutions in Part 4 of this four part series.

Part 3 – The problems that come from a supply fixation as a solution to housing affordability

The government is aware of complexity in dealing with the housing affordability crisis so it wants to include the private market as part of the solution. They have reflected this in the Urban Growth Agenda. It encourages changes to relax planning rules to facilitate residential development and intensification. This means developers can force their dreams and vision through, rather than a community’s visions of a city being realised. History shows this will inevitably result in conflict and a firestorm will come down on the government and councils as the private market will not deliver affordable housing. Again, inevitably, government and councils will be blamed for damaging the cities as developers will insist they are simply following the rules. And, in turn, opposition political parties can exploit that conflict. The places where these ideas arose from is as follows.

Alternative ideas on affordability

Tony Alexander in the YouTube clip ‘When will house prices cool down/Cooking the books’ from March 1, 2021 says house prices won’t go down because low interest rates are what is driving the high prices. This is a factor because it makes it easier to borrow and leverage a property. But pressed for his suggestion to solve the housing crisis, it is not to raise interest rates (I agree with him) but to remove planning restrictions. This solution is linked to the defective increase supply argument as explained previously. He expresses sympathy for first home buyers and has a great analysis but overall he is passive about most of the factors driving affordability, they just exist for him. Using the metaphor of climate change, I think his analysis is more as a weather forecaster looking at the factors of the day but not as a climate scientist looking at what is underlying and driving the factors.

Alexander’s suggestion on planning is to relax the rules so that six story buildings can be built beside single story buildings. To take Wellington as an example, when this sort of absence of rules existed back in the 1950’s and 1960’s, huge amounts of heritage (for example in central Wellington, Te Aro flats and into Thorndon and Mount Victoria) were destroyed in an ugly way. This is why protection rules were introduced.

Alexander also critiques actions that impact the landlord/investor as being counter productive as any costs placed on them will just be passed on in rents. But even without any government actions rent prices are unaffordable. Fatalism, or perhaps a desire for defeatism, pervades his argument. Because if the actions were successful and investors are less active in the market there would be less demand and less push for prices to rise. And the New Zealand Property Council has said actions on removing the deductibility of interest would dampen investor demand.

• Can planning laws alone fix supply?

The answer is no because of the structural problems created by the ‘normal principles of taxation’ and the neo-liberal economic legacy that encourages excessive investor demand and that will hold housing values up – which holds up rents as well. Planning laws are needed to drive intensification which I fully support, but not at a cost to the historic character and liveability of a city. However, it appears the policy ideas Alexander supports are being listened to by the government.

Urban Growth Agenda – right idea, wrongly executed

For those on the left, the government’s recently developed Urban Growth Agenda is a neo liberal’s dream come true. Why? It is predicated on giving ‘permission’ to private developers to disregard the needs and wants of the existing local communities so the developer can build a six story build right beside one story houses meaning they will loose their sun and privacy with no chance to complain. The developer’s dream or plan (to make money) will come first and be forced through.

The Urban Growth Agenda does not have urban planning as its primary focus. It does have a vision of urban growth intensification which I fully support, but it is not ‘urban planning’. It has a feature Housing Infrastructure Fund which is money set aside to pay for infrastructure to support the private developer’s vision. This fund could cover parks, play areas, but it could also cover drains and water etc. But that is not urban planning for the local community. The risk is the fund will just be mitigation after an eyesore is built and the damage done to the house values of surrounding private home owners – the result: one group is allowed to make money over another group.

Some developers may not care if large buildings are built beside their properties as they can put one up beside it and each building can look into each other. The private developer sector’s vision is bounded by the constraints of; – I have this bit of land here and I need to maximise the profit from it so I stay comfortably in business. Even allowing for ideas like stunning new architecture it is still bounded by those facts. And those facts are not transformative urban planning in a positive community-led way.

The Urban Growth Agenda  also has the Housing Acceleration Fund which provides for government directed as well as private developments. Why should it include private developments when these companies already have access to funds through debt leveraging, which banks seem quite happy to do? Our current housing experience in Auckland already shows private developers are not building affordable housing. They advertise studio apartments for $600,000. This suits short term rentals (Airbnb) investments, or young men looking for a bolthole to call their own. And if a studio costing $600K is rented out, the rent will be high, it will not be affordable.

The history of private developers conflicting with the Resource Management Act is simply their vision conflicting with others who are also stakeholders in the community. A simple way to fix this problem is for there to be an earlier process to identify needs in the city, a proper urban plan of what the housing should approximately look like in this or that area or site, and then for developers bidding or volunteering to be part of that development. The current connect of development and ownership of random pieces of land and then developers trying to impose their vision on that piece of land is causing conflict. Urban development should be more planned. Areas should change as part of a process that is well signalled and worked towards over time. In many areas of central Wellington for example, this can be done quickly as there is so much low intensity commercial use.

The current Urban Growth Agenda is not urban planning but a one sided urban permission to build. The plan too much takes the side of the developers’ interests. Once high rises are built there will be community reactions. Developers will then say we are just doing what we are allowed to within the rules. The public will then turn on the rules makers (the government and council). It is a recipe for anger and conflict which is generally not good long term politics.

There are many ideas to fix the affordable housing crisis while increasing intensification which I fully support. I cover these in Part 4 of this four part series.

Wellington City – an example of planning relaxation that will not lead to intensification and affordable housing supply

Presumably following the Urban Growth Agenda the current Wellington City Council has gone zombie-logic against historic suburbs in the mistaken belief that this is the cause of a lack of intensification in the central city where more people want to live. But a simple glance across the city shows there is lots of low-level commercial buildings and plenty of land on which to intensively build (e.g. Te Aro), and there is little heritage over large parts. Huge fields of carparks cover large amounts of Te Aro. So intensification is not happening in the non-heritage areas, which indicates that heritage is not the cause of a lack of intensification.

There is simply no economic push to intensity which is why intensification hasn’t happened. And reducing the planning rules to increase the amount of land that could be available to intensify (which is what the council has done) will actually reduce the drive to intensify in the central areas.  The issue is simply not about heritage holding back intensification, and counterintuitively, is not about relaxing planning restrictions to increase the supply of land.

There needs to be some scarcity and an economic push to intensify (profit is a good one but that won’t make for affordable housing), and not just a council or government planning rule ‘we want to intensify’ and a permission ‘you can’. Developers will be screaming at this point ‘there is scarcity now!’ Okay? So what is causing that scarcity for their development ideas? Landbanking.

Developers have their little pieces of land they want to develop but they can’t get central city pieces of land because others own it and are just holding it for huge capital gains, (and possibly a lack of finance, or ideas, or ability, or desire). As an example; Wellington City is underdeveloped for central city living because of previous lax misguided neo-liberal councils and in part caused by reducing rates on commercial ratepayers and shifting (the cost of commercial rates reductions) onto residential taxpayers as part of the user pays philosophy. With lower land/rates costs businesses can afford to sprawl and underutilise land. Land banking is more cost effective with low costs. This has encouraged a lack of intensification of land use in the central city and encouraged suburban sprawl up the coast and Hutt Valley to get affordable housing.

The Wellington City council is currently allowing several developments of low level townhouses in the city, (car yards in Taranaki Street, and near Vivian Street between Willis and Victoria streets). The obvious question ‘why aren’t these semi industrial/commercial areas (car yards and carparks) developed into quality high-rise intensified living areas? The owners likely answer is – that low level two story builds are lower-cost to build compared to multi-storey builds, and therefore profit is maximised. But the real answer is nobody is demanding they build up or else. Developers should be instructed that as this site/area is slated for medium to high density housing, therefore they must comply and build it that way. And, if they are unwilling to do so, then perhaps somebody else will.

Another example to demonstrate this lack of push to build up, is car parks in Wellington. Carparks used to be many stories high. Now Te Aro has many sprawling field carparks. Parking provides enough income to business to cover costs. There is no drive for central city landowners to intensify and make the most of their land, so they do not. Council has listened and responded to developers who argued about planning issues, because that is what developers see. But what residents see is liveability with heritage. There are plenty of other areas to build affordable housing without destroying heritage.

The new Wellington Spatial Plan, which has significantly relaxed planning rules, is a disaster for heritage housing in central Wellington and the liveability of the city for all ratepayers. Heritage brings tourism and is one of the main factors that makes a place special and gives it character. Successful central cities have gardens and trees connected to history that allow views and sun. For those who have lived in and hated dilapidated heritage houses; that fault lies with the landowners who are land banking and exploiting people. That is what needs to stop.  Heritage housing can easily be renovated and restored to a modern exciting excellent standard.

To those who say heritage is a poor use of land which is not permitting inner city development to occur so as to accomodate an increase in inner city residents; and people come first. Heritage is people coming first. The brand new two story no parking townhouses in Taranaki Street are no more effective at housing than low level heritage. Yes more people will live there than before (it was a car yard) but what about the long term opportunity cost of not having medium to high density intensification on those sites. More importantly these are crammed in with little outlook or privacy. The chances of them being subject to an urban ‘Vicious cycle’ is quite high, i.e. good residents move out as the units are too cramped/not private/noisy from wooden frames, ergo; rents drop, maintenance drops, those with little means arrive, poverty can drive overcrowding, meaning more people move out, repeat.

But even if we destroy all heritage and built residential Burj Khalifi towers over every block in Wellington, a time will come when all space will be used with a maximum possible number of people – then what for the people who still want to come? My point; there is a limit to the number of people who can live central. New York did not destroy Central Park to allow more people to live central. Beijing didn’t destroy the Forbidden city to allow more people to live central. Wellington should not destroy its heritage either.

Heritage (pre-1930’s houses) is a very finite and dwindling resource that is critical to the Wellington economy, i.e. tourism, including domestic tourism. It is also critical for the liveability of all residents. And unfortunately New Zealand history can’t just be corralled to a few tiny zones as proposed in the plan because historic houses in Wellington have not been corralled previously, so they are mixed in with other buildings, that is the nature of history. The problems arise as though the buildings do not mind a big new six story building beside it, the people living there do, and they vote.

Relaxing planning rules on heritage is not the solution to drive intensification of the residential housing supply.  More planning and direct requirements on developers is needed, not less. But their projects can be supported when they accord or are adapted to fit with the community’s vision of the city. It could be that a developer may have land in an unsuitable location for their desired project but there may be land in another location, held by council, or government, or somebody else that could fit with that development. So it could be supported by a land transfer or some such vision.

I put forward several solutions to the housing affordability crisis and the need for intensification in Part 4 of this four part series.

I also suggest that Wellington City councillors roll back their Spatial Plan before the next local body election as there is already talk about councillors being challenged. It is a political gift to an opposition when large buildings are built in low level residential areas. Councillors want affordable housing and intensification like I do, but the roll back of planning restrictions is the empowerment of big business to force through changes they want without direct community involvement. You are facilitating the old neo-liberal ideas that have failed. (So Ironic that Nicola Young didn’t vote for less planning rules. Good on her.) On affordability you are saying to developers ‘you do it, build it, save us’. But that is simply not how they operate. They are attracted by the high prices for high rewards. But the high prices can’t deliver the affordable rents as they must have a sufficient return on capital. Your permission to developers to ignore the community is going to come back and bite you.

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Part 4. Solutions – What can we do to fix the housing affordability crisis

SOLUTIONS: We first need to acknowledge there is an affordable housing crisis. Also, it is not a political issue but a fact that needs action to be taken to address it. The current actions will not fix it because the underlying economic forces are still in place that trap investors in the housing market and an increasing number of renters will be trapped renting, with long term equity consequences for the New Zealand economy. That is the basis for the following suggestions. It is the crisis that means we must look at things that may previously have been unthinkable for many.

No political party should be upset about redirecting investment into the productive economy for innovation and exports. No political party should want to stop voters, the average New Zealander, having the chance to build some equity through owning a house, and possibly create business opportunities for their family and for the rest of society from that equity. Those on the conservative side might reflect on the fact that homeowners have traditionally been more conservative. Voters who are eternal renters may be less conservative than you would like.  Tough confronting solutions have to be looked at; it is a crisis.

The following areas of action are needed:

1. ‘The normal principles of taxation’ are overdue for a reset – not just for housing, but in regards to how it directs and shapes the economy, and supports tax avoidance. If done right, it can lead to a less growth oriented economic model but a more sustainable one. Less chance of boom/bust, with more economic activity that benefits smaller entrepreneurs and NZ based businesses. If we don’t do this the lack of affordable housing will remain a problem for New Zealand as the principles are twisted in our economic environment and it will continue to push money into housing that is not affordable. I have developed a submission that reduces tax avoidance, and by shutting down some behaviours it redirects investment capital into innovation, exports, technology, and small local businesses.
2. Provide councils, communities and government with the tools to urban plan more forcefully and directly. These can then be used to ramp up affordable housing much more quickly. The current idea with reduced planning rules is to give that ‘force’ to private developers.
3. Ensure the current housing stock is available and being used to reduce the affordable housing crisis.  This is a cheaper and quicker option than building new, especially compared with intensification projects.
4. Create secure, profitable, alternative investment options other than housing.

Government must take the lead

To build an affordable housing market there is no escaping the fact that the government must take the lead. It must be government projects first. The recent trends show private enterprise does not deliver affordable housing. The burden must be on private developers to prove otherwise.

How can the Government build affordable housing?

The government is best placed to provide affordable housing but is constrained by not having much control over urban land on which to build and intensify housing. And it needs to be fiscally prudent to prevent inflation so it must be careful about borrowing. So as the need for social housing is in crisis, the government should take some or all of the following steps to get hold of existing residential housing.

• Trade in house for investment security – mum and dad investors with one or two rentals may be willing to trade the rentals in for a long term Government ‘term deposit’ paying a high rate of interest that is sufficient to compensate for loss of the rental revenue. This means government gets a house it can provide instantly to a family or person in social need (displacement of demand by another renter occurs but it is for a higher need).
• Public Works Act acquisition – we do it for roads so let’s use it for affordable housing. Sites close to transport could be taken if they were identified for development. From my understanding the Act is actually generous and some people dream of the cash injection from having some rural land taken. A question to consider is; should it be this generous? (In the Netherlands and Germany such acquisitions for housing are normally made at existing land use cost – I’ve not researched what happens in New Zealand).
• Trade up a home for a home – If an intensive development is going to occur but some local houses are needed for that development then perhaps they should be invited to choose one of the brand new houses at no cost to surrender their existing house. This policy would need to consider how much mortgage there is to pay. Should some of that mortgage be paid as well?
• Low intensity land use swap – a developer may have a vision for urban housing intensification and can think of a site where it would be good but does not own the land. In such a situation, a process could be initiated to evaluate the desirability of the low intensity land use versus the quality ‘affordable’ development, and whether the two could be integrated e.g. business on a lower level with apartments above. Once a decision is made, a swap of land could be enforced and perhaps a small compensation paid. Exemptions for historic buildings can be made for low intensity use. Other factors would need to be considered. The same could also apply for the government or local council around transport hubs where they have a desire for housing intensification, or other urban planning objectives, like parks that would support intensified housing.
• Reverse mortgages for house acquisition – the government eyeing up future development sites or as a more general service, could enter the reverse mortgage market with lower fees and protections for these people. A purpose in this is that the house could eventually become an asset for affordable housing.  It should allow transfers from other entities that hold reverse mortgages. These mortgages are generally not good for home owners in rising markets.

Several of these options are relatively low cost to the government or a council. There is a cost layout but the asset (house and land) will be on the government’s/council’s books.

Once land is accumulated the process may be the government/council create a site, designing and planning its function and then inviting tenders to build it. If land is going to ancillary services or activities attached to it e.g shops, there may be the possibility of a joint cost or build. It could be that a site or area is identified and developers are invited to make proposals and tenders for development of that site.

Redirecting investment from housing.

• Trade in house for investment security – The first bullet above is a key component for redirecting investment. In some ways it is similar to a mum and dad rental investors who pay a property company to handle dealing with the rental (maintenance and monitoring etc) and the renters. So they don’t really see the rental house. This option would have to be developed and promoted.
• Micro private/public partnership – The government can also rethink the private/public partnership model which is heavily centred on cooperation with large corporate enterprises. The government could trial a descale down to individual New Zealand investors. A series of infrastructure projects (e.g. transport, housing, education, research, stadium) could be announced  and people could choose to sign up to invest in the ones they want to. Their capital could be used to support the construction and then they would get some sort of reward over time as the asset is used. It means New Zealanders can use their capital to back New Zealand projects and they can see the result. The government would have to ensure there is not too much exposure to risk, just like they do with a big business.

Other options to deliver affordable housing sooner.

• Requiring maintenance of historic houses – For historic houses (pre 1930’s) the local council should have the power, whether the building is rented or not, to require the owner to bring the house up to a modern or restored excellent standard of housing. A house cannot be left to become dilapidated even if the owner chooses to do that, because it is an asset for the city and future generations. It is also a little piece of carbon capture. But as importantly the community must ensure a person living there is not at a health, fire, or safety risk to themselves or others.  If the house is rented then the renting standards should apply – there should be no slum landlords. But the local council or government (perhaps administered by Heritage New Zealand) must decide if any action is to be taken. Should the owner not be financially able to update the house professionally, then the council/government should undertake the work and the amount spent becomes a low interest loan that is secured over the property. They should not be permitted to do the work themselves unless it is professionally being done and checked. Timeframes would be established. When the person sells or dies the loan can be collected from the house sale/disposal, or the house can move into the council’s or government’s stock of affordable housing assets with any balance in value paid out to the estate.
• An ‘empty home tax’. This is a tax in Vancouver as I understand. Anecdotally around Wellington there are lots of empty houses that could be rented but aren’t. Such houses should be sold if the person doesn’t want to do it up. Neighbours could be one of the main way this is identified. Obviously more work needs to be done to investigate and establish how this would work before it is applied.
• If a house has no occupier, then the house must be required to be rented – this is similar to an historic houses requirement and an empty home tax. If the house is in need of repair so it can then be rented, the council can undertake the work (contract in) and the cost of the work becomes a loan (normal interest) secured against the house. In Wellington for example there is anecdotally many empty houses that are a little rough but could quickly and easily be brought up to an excellent standard for rental. If the house is still not rented then the ‘empty home tax’ would apply. Details to stop delaying tactics would all need to be worked out.

These options would all generate local work and open opportunities for apprenticeships. They are quicker than new builds to increase the housing supply.

How should the government/council treat housing ownership when built through schemes it leads or looks after

The ownership model for affordable residential housing is open.

• Government ownership with rotating occupancy as people move on (Traditional state housing occupiers and rents).
• Rent to buy with financial support schemes from government to make this viable.
• Government (creates and builds affordable housing) on sells. The price will vary according to each development. Price would be influenced by market but pushed down to make affordability possible.
• Government owns houses but rentals not targeted to any economic group, rents capped at affordability for the renter. e.g. 20% of income. As income rises so does the rent.

A mix of the above is possible, and there may well be others. e.g. below – rent capped.

Rent capped?

According to some economists there should be no need to buy a house but just rent which gives social/economic mobility if people need to move for work or there’s a change in family circumstances. I do not support this model but it is not without some merit. If this was the case most housing should be owned by government or other entities and rent capped according to an ‘affordability’ concept. e.g. 20% of income. Some push back may occur if private entities complain about the ability to maintain property, or to get a sufficient return on capital.

You can clearly see the housing investment sector is currently in a holding pattern due to the government announcements on removing interest deductibility and the Inland Revenue discussion document that holds out the prospect of options to get around the restrictions. But if this rent cap was required by government now, it would certainly create a very quick and immediate reaction in the rental and housing sectors. It is not something I would recommend but excess investor demand would dry up almost instantly.

In summary

The New Zealand economy is a one horse pony based on residential housing. Excessive investor demand, driven by ‘the normal principles of taxation’, leveraging, and a lack of safe alternative investor options is holding up prices leading to a housing affordability crisis. High prices shut out working and middle class people from buying, and make saving deposits impossible as high prices mean high rents. Even if banks make huge loans for people to buy, this strips disposable income out of the economy just as high rents do. This leads to less demand through all other sectors of the New Zealand economy, e.g. education, arts, domestic tourism, hospitality, the ‘trades’. As importantly it leads to less chance for a person to build equity, to one day take up a business opportunity of their own making, which in turn could employ others and turn into a medium sized business that further benefits New Zealand.

New Zealand has had almost forty years of a private business model focus on housing and it has not delivered affordable housing but rather the opposite. It can not deliver supply to meet demand. The new ‘build to rent’ model is driven off the current system and the prospect of good profit, not affordability.  But we cannot build our way to sufficient quality affordable houses because all the drivers of excess demand remain in place, so prices will remain high. We need to make a collective effort, not just our private effort, and use the strength of government for; tax reform, overhaul existing housing stock, and building.

The affordable housing crisis is not just about the low quality of the lives of New Zealanders now and the problems from low levels of disposable incomes. It is now about the strength of the economic future of New Zealand, for our children’s and grandchildren’s sake.

EDITOR’S NOTE: Stephen Minto lives in Wellington with his two children. He worked for New Zealand Inland Revenue Department for approximately 33 years and is now enjoying no longer being bound by public service etiquette of being non-political.

This week’s Budget is a chance for the Labour Government to take the crisis of poverty and inequality seriously. They can do this by delivering something serious or even transformational for those suffering at the bottom of the heap in New Zealand. In particular, a big increase in core benefit rates would be the most effective way they could tackle the worsening problem.

Of course, Prime Minister Jacinda Ardern has already faced campaigns to increase benefits, and firmly said “no” to these as recently as December – you can see my roundup of this issue then: The Left’s challenge to Labour’s inaction on poverty and inequality.

However, pressure to deliver to those most in need is now just too great for the Government to ignore, and rumours are building that a benefit increase will be announced. Last week, Finance Minister Grant Robertson even signalled the Budget will include measures to deal with inequality and poverty, and Ardern came up with the term “The Compassionate Budget” for what is coming.

Business journalist Liam Dann forecast in the Herald yesterday some big spending to put more money in the pockets of the poorest: “There will undoubtedly be some big, new spending packages in this Budget. They will likely target child poverty and those suffering most from inequity” – see: Budget 2021: Why Grant Robertson won’t match big spending Aussies (paywalled). And Dann outlines how pumping money to the poor will tick both moral and economic boxes.

Arguments for a big “benefit boost”

If the Government ever needed permission to boost benefits, it received this in a landmark survey released in February showing overwhelming public support for increased income support for the poor – see Harry Lock’s Survey finds 69% want income support for those in need increased.

The question was asked whether “the government should increase the amount of income support paid to those on low incomes and not in paid work”. Across all demographics, incomes, and voting alignments, the result was clearly in favour of government action. Even Act Party supporters tended towards an increase in income support.

Responding to the poll, the ActionStation advocacy group said this about benefit increases: “The time for excuses is up. This poll shows the government has a clear social licence and mandate, on top of its moral obligation, to lift inadequate welfare payments to ‘liveable’ levels, and it needs to be done now, in this Budget round.”

Plenty of high-profile voices have also been urging Labour to do the right thing. For example, recently political journalist Andrea Vance highlighted that while Ardern had come to office on a promise to reduce inequality, she hasn’t done so yet – see: The social welfare net is threadbare – can Grant Robertson mend it?. In this, Vance suggests giving beneficiaries a proper payment increase as well as modernising the whole welfare system.

Similarly, writing in February, Branko Marcetic argued that lifting benefits is the “bare minimum” that the Government should be doing to work on fulfilling its promises. But he admits a benefit rise would have a downside for the Government: “Doing this will certainly mean Robertson may have, at first, less impressive debt numbers to show off to business leaders at lunches and breakfasts held in luxury hotels” – see: NZ’s economic “bounce-back” is a myth – but lifting benefits would bring it closer to reality.

Welfare researcher Louise Humpage has more recently argued that benefit increases and other positive welfare reforms are desperately needed, because what few initiatives the Government has already taken have only had a negligible impact – see: If New Zealand can radically reform its health system, why not do the same for welfare?.

Humpage also points out that the Government’s own Welfare Expert Advisory Group made a number of recommendations for reform, which the Government is largely ignoring: “It made 42 key recommendations but only a handful have been addressed. Almost two years on, we are still waiting for real action.”

Latest “grim” poverty statistics out

More evidence of the “grim” situation came out on Thursday, with the release of the Government’s first Annual Report for the Child and Youth Wellbeing Strategy and another report on Child Poverty Indicators. The most significant finding from these reports was that 20 per cent of children live in households where food runs out either sometimes or often. For details, see Rebecca Moore’s Advocacy groups slam ‘racist’, ”discriminatory’ system after Government releases child poverty report.

The article reports the response of Child Poverty Action Group’s Janet McAllister, who says “We should be angry about this” and she admonishes the Labour Government for only taking “small steps to address these big issues”, saying although there are indications of slight improvements in poverty levels, “It’s not okay to be a little bit better than four years ago.” She concludes that “The Government has power to change this terrible situation we’ve been in for far too long.”

Guardian journalist Tess McClure labelled the stats as representing “slow or non-existent progress” on dealing with child poverty – see: Ardern faces calls to boost child poverty spending in budget amid glacial progress. She reports Children’s Commissioner Andrew Becroft’s statement in response, that there was “an inarguable need to increase benefits”, calling “for more spending for children in the upcoming budget”.

The Prime Minister is also quoted defending her record, saying “Many of the issues facing children, young people and their families are complex, stubborn and intergenerational, so we know change will take time, and will require sustained action across government and across our communities”.

Similarly, researcher Max Rashbrooke’s message is to have more patience, because “Child poverty is like a huge oil tanker – it takes a long time to turn around”, “It takes time to convert income into greater wellbeing”, and “Some of the problems are so ingrained, that you spend a lot of money erasing the problems of the past”. But he lamented that the Government are “not willing to commit to the massive increases in benefits that would really see us slashing the rates of child poverty.”

Rashbrooke has also written recently about his attempt to track down planning for how the Government is going to deal with the poverty crisis, coming up empty-handed – see: Plan and budget both AWOL in child poverty fight. He says: “we need Ardern to tell us exactly how she will meet her long-term targets, how much it will cost, and where those funds will be found. The issue also cuts to the heart of her Government’s credibility.”

This article follows on from an earlier one by Rashbrooke in which he argues that the Government’s lack of a plan on poverty is troubling, and that making inroads will require much more boldness than is currently on offer – see: Tackling child poverty a mountain that keeps getting steeper.

Economist Brian Easton also responded critically yesterday to the latest poverty stats, suggesting that any purported improvements are just “statistical noise”, but that this shouldn’t be surprising “because the policy changes have been small, if trumpeted loudly. Therein lies the challenge. The assumption seems to have been that small incremental policy measures can eliminate child poverty. But they will give only small incremental gains” – see: Are we really serious about child poverty?.

Easton is very critical about Ardern’s vague attempt to find a moderate path to fulfil the radical targets set under law to fix child poverty: “Can it be done incrementally? I am sceptical unless the increments are larger and more focused than what has occurred so far. The statute says where we are to end up, but it does not provide a path to get there. So we are gingerly navigating our way; there is no map.”

The lack of a plan for dealing with poverty was also criticised earlier in the year by a Stuff editorial that said “we’re on a track that remains only half-built and the path ahead is anything but clear and, even now, we don’t really know where we stand” – see: Limited progress in child poverty, but it’s not on track yet.

The newspaper cites the arguments to increase benefits by between 12 and 47 per cent as the official advice dictates, and adds that the Government has a mandate to be much more radical: “the result of the previous election was nothing if not a mandate for boldness on fronts such as this.”

Also writing about this time, leftwing columnist Gordon Campbell said: “Voters gave Labour a sweeping mandate to pursue transformational solutions for this country’s most serious problems”, but that they’re taking “tiny, barely discernible steps to reduce poverty” – see: On Labour’s fudging on child poverty. He asked: “Is this really the transformational change we expect to see from the Ardern government, given how much political mileage it has got from claiming to care? Hardly.”

How much should benefits be boosted?

If a benefit boost does eventuate in Grant Robertson’s Budget on Thursday, the crucial issue will be how much they rise by. There seems to be a near-consensus amongst progressives and welfare advocates that such an increase would need to be in the range recommended by the Government’s Welfare Expert Advisory Group of 12-47 per cent. Anything less than a $100/week increase for single jobseekers, as recommended, will leave many on the left disappointed.

Some would even like to see benefit rates doubled. Writing in the Herald last week, the Auckland City Missioner, Helen Robinson, looked at this issue of how much benefits needed to rise by, and suggested: “The $490 weekly Covid Income Relief Payment for full-time workers who lost their job during the pandemic is a good starting point. That level of investment, compared to the little over $250 a week received by a single person over the age of 25 on Jobseeker Support, is a more realistic weekly income. Economically this is possible” – see: Impossible choices deprive our people of hope (paywalled).

Robinson commented further on this yesterday, saying to break the poverty cycle “the benefit needs to increase by around $200 each week” – see RNZ’s Major rise in benefits needed to get children out of poverty – Auckland City Missioner.

The City Missioner also points out that official statistics released last week on child poverty are out of date, and that things have got much worse due to the impact of Covid. As an example, she says “the mission before Covid was doing about 25,000 food parcels a year and this year we’ll get to somewhere between 45 to 50,000 food parcels – so the need has significantly increased.”

What else could the Government do?

If not a significant rise in benefit rates, what else could the Government do to help those at the bottom? According to the Child Poverty Action Group, they could start indexing Working for Families payments in line with the wage index, as is done for Superannuation and benefits – see Melanie Carroll’s Working for Families falls behind wage rises: Child Poverty Action Group.

According to this article, the “Government had not increased payment rates for Working for Families since 2018”, and research shows that the lack of indexation has left “some families up to $1900 worse off over two years”.

Additionally, Working for Families could be reformed, to provide the “In-Work Tax Credit” to the families of beneficiaries, as recommended by the Child Poverty Action Group – see Janet McAllister’s What the annual child poverty stats tell us.

In this piece McAllister also complains about the low rates of benefits, suggesting that Labour’s approach is still too rightwing: “Ruth Richardson’s Mother of All Budgets still has more influence on the miserly social welfare system than Jacinda Ardern does. In fact, net benefits and child assistance (Working for Families) combined are still lower now that they were immediately after Richardson’s social welfare cuts, as a percentage of net average wages.”

The free school lunch programme could be extended, as it is currently only funded for about a quarter of students. This is a call backed by the Children’s Commissioner, who says “free lunches for schoolchildren should be ‘a birthright'” – see Lana Andelane’s Free school lunches: One free meal a day means one less thing on parents’ plates – Kiwi mum. However, the Prime Minister has responded negatively to this, saying that such a universal approach would cost too much.

Finally, for a clever and satirical communication of “how New Zealand’s post-Covid economy has benefited some while hurting others”, see cartoonist Toby Morris’ The Side Eye’s Two New Zealands: The K Shape.

Getting the Language Correct

Aotearoa New Zealand has a housing problem; a very big housing problem, and a problem not unique to New Zealand. While political leaders and privileged commentators do acknowledge the problem, the discussion remains befuddled, presumably largely because of the compromised political and financial interests of those who we turn to, to lead the discussion.

We have a problem of language, in which the word ‘investing’ is used to cover a multiple of activities, some of which need to be supported and others which should be eliminated. Then we emphasise the word ‘house’, and first-home ‘buyers’; we should be talking about ‘homes’  rather than ‘houses’, and ‘home-seekers’ rather than ‘buyers’ or ‘renters’. And the kinds of ‘investors’ which home-seekers do not like should be called ‘land speculators’ rather than ‘investors in rental housing’; because, in many cases they are not suppliers of homes for rent.

The most fruitful approach to take is to promote the reality that all home-dwellers are renters, thereby downplaying the distinction between ‘owners’ and ‘renters’. Our system of national accounts makes no distinction; the rental value of all dwellings is included in gross domestic product (GDP). The trick is to understand that an owner-occupied dwelling is a property in which the same ‘family’ is both tenant and landlord. We should also note that, while governments will always need to play some role in the market for homes (and especially in times of income inequality and income precarity), the principal home-supplying institution is and should be the market.

(Here, I am going to refer to all home-dwellers as ‘families’. Families are not necessarily all blood-related, and include ‘flats’ of unrelated single people. And, while families may be households of just one person, we should be able to rely on market forces to supply more small homes in times when there are more small families.)

So let’s get some good and clear language. Urban landlords – ‘landlords’ in this context – are owners and ‘letters’ of homes; they are people who let the homes that they own. They may own one or more homes, and they may let their homes to themselves or to separate ‘tenants’. Landlords – as defined here – are good people; they represent the solution, not the problem. And these ‘good landlords’, good people as defined, may also be tenants who rent the separate home that they live in, most likely a home of a different size or in a different place from the home(s) they own. Again, these people are part of the solution, not part of the problem.

‘Good landlords’ – as carefully defined – come within the media category of ‘investor’. So do ‘slum landlords’, people who own poorly-maintained homes which they let mainly to other people (though some who are miserly may themselves choose to live in poor conditions in a home they own) whom they financially exploit. It is a moot point to what extent slum landlordism exists in Aotearoa in 2021, but we know from studies of geography and history that slum housing is the market’s response in societies with high levels of income inequality and income precarity. My sense is that Aotearoa’s policymakers will fail, and that, say in 2041, a large minority – maybe even a majority – of New Zealanders will live in slums. But ‘slum landlords’ are not the kinds of ‘investors’ I am concerned about here.

There is a second type of good investor – genuine ‘property developers’. These are people who buy urban land for the purpose of demolishing old houses and building new homes, or making new homes through subdivision, or making new homes by repurposing existing houses. These ‘brownfield’ developers are an absolutely necessary part of the solution; indeed we see in Auckland many property developments taking place, many in the form of medium-to-high density apartments which are reasonably central and well-located for public transport. These homes, located in places where urban infrastructure is already in place, incur low ancillary costs. There are also costly ‘greenfield’ property developments on the urban fringe, or sprawling beyond it into places without infrastructure and in which land may be presently used in horticulture. Property developers do tend to respond to market forces, and it is up to central and local governments to incentivise the brownfield over the costly greenfield developments. Good investment incentives – incentives that lower the cost of making homes – will in many cases be effective subsidies, not new taxes.

The bad types of ‘investors’ are the land speculators, who buy urban land, hoard it, and thereby create land scarcity, and that scarcity forces up the price of land. We know that much of this hoarding is happening, former homes ceasing to be homes, creating a shortage of homes. This reduction in the supply of homes is the principal force that is driving up rents; if good landlords are buying more houses, the result would be an increase in the supply of rental homes, and rents should not be increasing anything like as much as they are. It is this kind of false ‘investment’ – ‘landbanking’ as real estate agents call it – that is socially and economically corrosive, and needs to eliminated. This elimination should be able to be addressed largely through targeted cost disincentives, but also by the threat that land hoarding may be excised through compulsory government purchase options.

Land hoarding takes various forms. While the most blatant form of hoarding is that of empty houses, the new euphemism is ‘short-term rentals’. This may include listing properties on platforms such as Airbnb, even though the property is empty most of the time. It may include other situations which might best be called house-sitting, and in which house-sitters may be the adult children of the property hoarders. And it may include properties administratively signed over to property managers on the understanding that these managers are working, like lawyers, solely on behalf of their extortion-motivated clients. Either way, these hoarded urban properties contain houses that are not able to be proper stable family homes. For present purposes, I will include empty properties as extreme cases of ‘short-term rentals’. Short-term rentals are houses that are not homes.

Supply of and Demand for Homes

We keep hearing that ‘supply’ is the problem, and many economists emphasise the supply of land on or beyond cities’ fringes. Other aspects of the supply issue – as promoted in the media – are bureaucratic ‘red tape’ and the unpreparedness of local governments to generate infrastructure to support such greenfields housing. Surprisingly, these economists underplay the opportunity costs represented by the existing uses of such land, and the goods and services that would need to be given up to assemble a greenfields housing labour force. Also, they have underplayed supply constraints on building materials, and on construction education.

The real supply issue is that properties which were once homes are becoming ‘short-term rentals’. Thus, the supply of homes diminishes every time a house with a family in it – a home – is acquired by landbanking ‘investors’ and thereby ceases to be a home. The supply problem would be much less if, every time a home is sold, that property continued to be a home. In cases where one tenanted home is sold by one landlord to another, the default situation should be that the tenancy is simply transferred to the new landlord.

The critical issue is what happens to homes after they are sold. Because there is too little political will to actually solve the home-shortage problem, there is too little will to collect statistics about what happens to homes when they are sold to ‘investors’. We continue in an information vacuum. The convenient but untested fiction is that all investor-purchased houses are ‘rentals’ that are subsequently let to families. Just because lazy commentators label a house a ‘rental’ does not mean that the house is actually rented out to a family.

So, if the acute shortage of supply is a result of houses ceasing to be homes, then the immediate corrective is to reverse that process, using policy levers to ensure that all existing houses – or at least all houses in New Zealand’s urban centres – can become someone’s home. It matters little if these new homes are tenanted or owner-occupied; what does matter is that our houses are owned by good landlords (and noting that an owner occupier is a landlord, and usually a good landlord).

We need strong incentives against inappropriate land ‘investments’, and effective subsidies that support genuine investment in the processes of making homes.

Re the demand for homes, there should be no pretence that an owner-occupied home is in any sense a superior home to a tenanted home. A home is a home; the structural maintenance is the responsibility of the owner, and the homeliness of a home results from the ability of families to make their dwelling feel like a home. Most ‘first-home’ buyers are both making a home and an investment, whereas successful renters are simply making a home. While increased demand for homes is determined by demographics – especially population increases, employment opportunities will also substantially determine which places see the greatest increases in demand. Well-functioning markets – supported by effective and appropriate subsidies – should ensure that supply responds to demand; locally, nationally, and indeed globally.

Earlier I alluded to the issue that good landlords ‘may not live in any of the homes that they own’. A special case that needs supporting is that of families who own just one home, which they let to others, while living as tenants in a home they rent from someone else. While this situation is an obvious one for families who migrate from a provincial city to a metropolitan city, and helps to develop a home rental market in provincial cities, it also makes sense as a responsible way of getting on the ‘property ladder’. A well-functioning property-owning democracy – a liberal democracy – should have both dispersed private property holdings and acknowledged public property rights.

What should happen is that such families only pay tax on their net rental income. (If they pay more in rent than they receive in rent, then they should pay no tax on their rental income; indeed there is a good economic efficiency case that they should ‘pay’ a negative tax on a negative net rental income.) At present such people cannot offset rent paid against rent received, having to pay marginal tax rates (eg 33%) on the full rental income, though net of certain expenses including mortgage interest. If these people, whose activities facilitate the supply of homes, lose the ability to deduct interest costs from their rental earnings, then they will suffer double jeopardy.

In general, no policy that adds to the cost of home-making should be countenanced. The plan to remove the ability of good landlords to deduct interest costs from their taxable income is such a policy that should not be countenanced.

The interest rate and migration fallacies.

In addition to the widespread clamour to increase the supply of homes through costly suburban sprawl (while ignoring the on-going reduction in the supply of homes as a result of land-hoarding), many commentators point to two other factors that may be creating an excess demand for urban land.

The main bugbear over the last decade was increased immigration of people. This argument was largely false, because such immigrants tend to rent their homes, meaning that rent-increases should have preceded house price increases; in fact, it was house price increases that came first, with rents lagging. (In addition, last decade, rising house prices, predominantly in Auckland, caused a substantial exodus of population from Auckland. Those parts of Auckland with the fastest increasing house prices were the parts of New Zealand with the slowest population growth.) However, in the last decade, the immigration of capital was an important factor. Much of the immigration of capital took place within the banking sector; eg Westpac Australia lending to Westpac New Zealand.

The second issue is that of interest rates. While it is true that low interest rates stimulate consumer borrowing – hire purchase, cars – and productive business borrowing – that is, they stimulate the demand for goods and services – they do not particularly stimulate the borrowing that funds speculative asset purchases. (The most important speculative assets are land, and company shares.) The best way to see this is to consider the speculative processes at play in the years before the 2008 global financial crisis. These were years of high and rising interest rates. What happened was that banks shovelled money into the speculative markets because the high interest rates rendered productive but unsecured lending to be high risk. The situation today is similar, with – for a variety of reasons – lending to non-speculative borrowers being constrained.

(In and around 2008, I was teaching financial economics with the help of a textbook by a well-known right-wing American economist; yet that textbook made the point I have just made, with clarity. Speculative borrowing is insensitive to the rate of interest, because, during periods of high expected capital gain, the returns on such borrowing substantially outstrip even high interest costs. This was also true in the 1980s when really high interest rates also contributed to property speculation, including the overwhelming of Auckland’s city centre.)

Interest rates are low in New Zealand and the world because they need to be, to fund construction projects and consumer durables. Arguably interest rates in some countries – eg New Zealand – needed to be even lower over the last decade than they were. Countries in Europe with negative interest rates – Denmark, Sweden, Switzerland – did not have housing bubbles on the scale of countries such as New Zealand which had significantly higher interest rates.

Rent Controls?

Finally, rent controls are not the answer to the present (or any other) home-making crisis. Rent controls lead to a contraction in the supply of the homes for rent that we desperately need more of. They exacerbate shortages of homes. One possible benefit of such controls, could be an increase of house sales to people who plan to live in those houses. More likely, we would see an increase in the rate of presently rented homes being disestablished as homes upon being sold, and converted into the euphemistic ‘short-term rentals’. (I wonder how long it will be before the government resorts to becoming a customer of Airbnb, as another – in addition to motels – expensive source of emergency housing!)

Conclusion

Any policy (including but not only a tax policy) that forces landbankers to divest themselves of hoarded land – and only targets these landbankers, not home-owners nor brownfields property developers – is a good policy. The result is that houses which are not homes at present become homes once again, and that newly built dwellings in established urbs and suburbs will all become people’s homes.

————

Keith Rankin, trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland.

contact: keith at rankin.nz

The day after New Zealand’s first lockdown was announced, I expressed to a senior colleague my concern for those around the country whose livelihoods would suffer as a result.

She agreed, but was confident that the spirit of “we’re all in it together” accompanying these drastic public health interventions would allow the government to lead the country towards a kinder, more equitable society.

“I think we might see a universal basic income,” she said hopefully.

As it turns out, the government had little appetite for progressive welfare or tax reform.

Instead, working with the Reserve Bank, they have propped up the economy through a combination of measures that have drastically inflated the price of houses.

This has most likely protected some jobs, but it has also made work increasingly irrelevant as capital gains completely outstrip wages. The wealthy have been made even wealthier, while many can no longer afford a roof over their heads.

In the past year, the average New Zealander effectively lost $54.59 for every hour they turned up to work if they did not own a home.

According to Stats NZ, the median worker earned $26.44 per hour before tax in 2020. That comes to $21.49 per hour after tax if working a 40 hour week.

Median house prices
Meanwhile, in the year to end of February 2021, the median nationwide house price increased from $640,000 to $780,000: a difference of $140,000. If houses took weekends, public holidays and four weeks’ leave off each year – which of course they do not but it makes the calculation simpler – that makes an hourly rate equivalent to $76.08 per hour. Tax-free.

This is a direct result of the decision to support the economy through a combination of quantitative easing, a reduced Official Cash Rate and wage subsidies, instead of meaningfully increasing spending on things we need such as infrastructure and welfare.

The government handed out money to the banks, effectively at no cost, allowing them to lend more at increasingly attractive rates.

The government also bought bonds at the same time, devaluing deposits and making it pointless to keep money in the bank. This combination of easy credit and disincentivised saving caused a large amount of money to start sloshing around looking for somewhere to go.

The traditional concern with this approach to stimulus is that it will inflate the price of goods and services, increasing the cost of living.

In New Zealand, though, we like to buy houses. A tax system that drastically favours property ownership, combined with a cultural sensibility that houses are a safe bet, has seen much of this newly available money pumped straight into the housing market.

A feature
This is a feature, not a bug.

It represents a new, more interventionist version of trickle-down economics for the 2020s. Decried in 2011 by Labour MP Damien O’Connor as “the rich pissing on the poor”, politicians from the right have long argued that if the wealthy feel wealthier, their increased spending will benefit those less well off.

Generally used to advocate for reduced taxes on the rich, these ‘trickle down’ arguments refuse to die, no matter how comprehensively and repeatedly they are discredited.

This revival of trickle-down economics is a little different, as it is based on direct stimulus rather than a reduction in tax, but the effective mechanism is the same.

House price inflation is desirable, we are told, because homeowners feeling the resulting “wealth effect” will spend more on the goods and services provided by other New Zealanders. The win-win logic of this argument hides the fact that, fundamentally, someone is paying a heavy price.

Another way to think about it is that the government has effectively paid for covid-19 by levying a special tax on anyone who wants to live in New Zealand, but did not happen to own property during the summer of 2020/21, and handing that money to homeowners.

Paying the price
Many will pay this price throughout their lives. Some will be consigned to renting forever, handing over ever-increasing portions of their incomes to landlords seeking increased yield from their value-inflated properties.

Too many won’t even be able to do that, and sleeping on the street or in emergency accommodation. The relatively lucky few who do manage to buy a home will have mortgages hundreds of thousands of dollars larger than they otherwise would, spreading the cost of covid across their entire lifetimes.

Even as the beneficiaries of this covid levy, most homeowners are unable to simply stop working and enjoy this newfound wealth.

They may feel that they cannot realise their capital gain because it is tied up in their family home. What this windfall does provide, however, is choice: the option to release some of their newfound capital by downsizing into somewhere cheaper, or to stay put, taking advantage of the extra equity to fund lifestyle improvements like a new boat, a bach or a remodelled kitchen.

Unprecedented demand for watercraft this summer suggests that many are doing exactly this.

It can be tempting to view this growing inequity as just another “baby boomers vs millennials” issue. Certainly, it does represent a massive transfer of wealth from generally younger New Zealanders who do not currently own homes, to the largely older folk who were able to buy homes cheaply in the past.

This disparity is reflected in Westpac’s latest consumer confidence figures, which show that younger New Zealanders are far more likely to be worried about their financial situation compared with older cohorts.

Patronising advice about avoiding avocados and food delivery services to save for a home entirely misses this point. Nonetheless, it is important to note that many older New Zealanders also live in poverty while subject to similarly individualising narratives of self-control.

Social divide
Perhaps the more important question is how this rapidly accumulating wealth will be deployed to further entrench a growing social divide.

Parents with equity to spare are increasingly using it to help their children “get on the property ladder”. On an individual basis this is an entirely reasonable thing to do.

At a larger scale, though, the competitive advantage conferred by having generous, wealthy parents makes it even harder for those who do not have such privilege to obtain a home. Many are being left behind as a new landed gentry takes shape.

These political-economic arrangements favouring existing wealth over hard work have been a long time in the making, beginning well before most of the current crop of politicians arrived in parliament.

It is notable, though, that a government that promised to address the “housing crisis” has actively and knowingly pursued policies that have produced an unprecedented upward step-change in the market.

Perhaps most concerning is that the Prime Minister has expressed her intent that house price inflation should continue, just at a more “moderate” rate, because that’s what “people expect”.

It is exactly these expectations that are the problem: these issues will not be resolved while houses remain a speculative investment vehicle, rather than a home.

‘Tipping the balance’
Tuesday’s announcement of measures to “tip the balance” towards home buyers, rather than investors, might begin to signal a growing recognition that housing is more than an investment.

A substantial class of investors have certainly been made exceptionally wealthy by the covid-19 response, even as those who work for a living have seen their incomes stagnate.

But while this separation of ‘investors’ or ‘speculators’ from ‘homeowners’ might be politically convenient, it makes something of a false distinction.

Whether a house is owned as a home, or purely a source of income, any non-improvement appreciation in value comes at someone else’s expense.

Until New Zealand acknowledges this, little will change: whoever is in charge, and no matter how many new homes get built.

Covid-19 has shown that when politicians want to act, they certainly can. As many others have pointed out, this government promised “transformational change”. I’m not sure that taking money from those with the least, handing it to those with the most, is quite the kindness my colleague had in mind.

Dr Brendon Blue is a geographer in Te Kura Tātai Aro Whenua, the School of Geography, Environment and Earth Sciences at Te Herenga Waka, Victoria University of Wellington. He mostly studies and teaches the politics of environmental science and restoration, but would have been better off owning a house instead. This article was first published on The Democracy Project and is republished here under a Creative Commons licence.

Article by AsiaPacificReport.nz