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

This last week I watched Push: The Global Housing Crisis on Al Jazeera, featuring Leilani Farha, Canadian lawyer and former United Nations special rapporteur on adequate housing. She is now leader of The Shift (the global movement to secure the human right to housing).

The central takeaway from this ‘Witness’ documentary is that the housing crisis is a global financial crisis (as opposed to the Global Financial Crisis of 2008).

The problem is essentially the concept of housing (and the real estate that it sits on) as more a form of financial wealth (‘financial wealth’ is an oxymoron, by the way; it means ‘wealth comprised of claims on wealth’) than a human right; as such, whether housing is occupied or not – or whether it is occupied by sojourners rather than residents – is incidental. In this financial view, all that matters is the dollar value attributed to assets, and that wealth is somehow generated through a bidding process that raises that dollar values of financial assets.

Managed Funds, especially Government (or government-mandated) Pension Funds

While we may emphasise the self-perceived entitlement culture of individual speculators in financial assets, the point of emphasised by Leilani Farha was the role of managed funds, which means that – indirectly – many of us, with savings ‘invested’ in these funds, are financial speculators without thinking of ourselves as such.

A particularly important class of managed funds is government funds, including and especially government pension funds. The worst kind of these funds would be the kind such as the New Zealand Superannuation Fund created by Roger Douglas in 1974 and thankfully disestablished by Robert Muldoon in 1976. The Canadian government pension fund is notorious in this regard. And New Zealand does have a smaller-scale government fund of this sort; it came to be known after its establishment in the 2000s as the ‘Cullen Fund’.

We can generalise here, by thinking of Sovereign Wealth Funds, many of which are classed as ‘pension funds’; and we can think of private managed funds – the mainstay of the financial industry – many of which (like KiwiSaver) are government partnerships with that industry. Governments, around the world, have a deep stake in the financialisation of real estate assets; both as governments, and in the private capacity (as speculators) of finance industry and technocratic and bureaucratic and elected elites. In the formal sense, as citizen holders of public equity, we are all speculators when government-directed funds are deployed in the speculative financial marketplace.

Yes, including the homeless and the underhoused among us; the deprivileged among us can still feel good that our unrealisable public equity increases as our housing and other material rights deteriorate. We own notional shares in the lands we are evicted from.

The way around this financialisation approach to ‘wealth management’ is the ‘pay-as-you go’ approach, which was last championed – in New Zealand – by Sir Robert Muldoon. New Zealand Superannuation is still largely funded – as it must be – out of current economic product; and not through the sale of financial assets that we hope can be converted by retirees into goods and services of a certain value. Further, pay-as-you-go is the essence of the Basic Universal Income, an income distribution mechanism based on democratic accounting standards (ie based on basic human rights); a mechanism that can form the basis for the re-engagement of the rapidly marginalising populations of each country in the world.

(The scandal of Covid19 is how the entitled minority of the world’s population has spread this virus to the disentitled – including the disengaged poor – infecting them, and killing them in numbers on a World War scale.)

Pandora Papers

Other stories this week underscore the conjoint problems of financialisation, inequality, and impoverishment. One such story is the release of the Pandora Papers’ leak to global media organisations.

These papers reveal a comprehensive story, not of illegality, but of uber-elite entitlement; of legal theft.

Control of price-appreciating financial assets, as revealed by these papers, is more than ‘mere’ tax avoidance. It is theft in the fullest sense of the word, in that it is increasing the claims of the entitled on the world’s finite economic output, thereby diminishing the claims of the disentitled, and pushing them into unsustainable survival practices. Financialisation is an entitlement mechanism, and it applies to both the demanders and the suppliers of financial products.

Entitlement is not only a problem of the uber-elite. Indeed, through our KiwiSaver accounts and the like, we all come to align ourselves to some degree with the highly entitled. Further, the highly entitled go well beyond the ‘one-percenters’; rather the top nine percent (or even the top nineteen percent) of the ’99-percenters’ tend to have an entitlement mindset towards property values and interest rates, even while blaming the conspicuous ‘one-percent’ for the world’s woes.

One test of entitlement culture is a person’s attitude to interest payments. People who believe that they are entitled to an interest ‘return’ on saved income over and above the inflation rate are people who believe that they are entitled, as a form of self-congratulation, to an increased share of the world’s goods and services. It was in medieval times clearly (and correctly) understood that it was sinful to ‘make money from money’. This is distinct from making a profit from investments, such as planting a crop, irrigating a field, retaining livestock for breeding, or learning a trade.

In reality, the ‘real rate of interest’ is sometimes positive; that’s when lenders (ie savers) are scarce and borrowers (including investors and willing governments) are abundant. Under those conditions – rare in the lifetimes of people alive today – a legitimate premium is payable to people holding rather than spending money. The reverse conditions are much more familiar – an abundance of unspent money, and an aversion to deficit financing – in which, naturally, the real rate of interest should be negative.

Indeed, it was the negative real rates of interest during the global Great Inflation of the 1970s and early 1980s, that rumbled the uber-entitled, and led to the global financialisation coup of the late 1970s and (in New Zealand) the 1980s; the world event that is commonly called the neoliberal revolution. Theft through financial chicanery has prospered ever since.

New Zealand’s Official Cash Rate (OCR)

The first raising of the OCR in New Zealand for several years is indicative of this entitled view that real interest rates (as an indicator of real financial returns) should always be above zero. As such, the management of interest rates is the illiberal intervention in the marketplace that is most used to support economic liberalism.

By and large, the New Zealand public falls for the argument that higher interest rates are needed to slow down the rate of increase of financial asset prices (eg of house prices). There is little evidence for this, and indeed the 2004-08 house price inflation was in large part a result of rising interest rates.

The problem is that genuine economic borrowers are discouraged by high or rising interest rates, and that rising interest rates make very little difference to speculative borrowers. Thus, when interest rates increase, increasing proportions of all borrowed funds are lent to acquire financial assets with a view to making returns through capital gain. (Capital gains’ taxes are rarely sufficient to offset this reality; the main driving force pushing money into speculation is reduced lending to the real economy.) This truth is clearly evident by a cursory inquiry into the behaviour of house prices during periods of rising real interest rates.

In addition to rising interest rates ‘inadvertently’ stimulating financialised markets, the countries which intervene to raise their interest rates the most find that their exchange rates increase, as foreign money increasingly treats domestic money as a speculative asset. While this currency appreciation may dampen inflation in these countries – while exacerbating inflation pressures in the countries with falling exchange rates – it also does much harm to the export industries of these countries. Export industries suffer the double whammy of higher borrowing costs and an appreciating exchange rate. Indeed, the aggressive raising of interest rates to engineer an appreciating exchange rate has all the entitlement hallmarks of a Ponzi scheme. (Just look at New Zealand in years such as 1987, 1995-97, and 2004-08. If you don’t believe me, look at Iceland in the years before 2008.)

We should note that if rising interest rates make any difference at all to the global rate of inflation, they indeed exacerbate rather than diminish inflation. The only proviso to this is that rising global interest rates also create global economic crises, such as 1929-31, 1979-82, 1989-93, 2000-01, 2005-08, and 2010-12. While rising global interest rates are inflationary – they raise business costs, including higher required rates of profit – global recessions are clearly deflationary. Higher interest rates only reduce inflation by creating recessions, an even worse problem.

Basic Principle

Consumption entitlements should be distributed as human rights, and not as greed premiums. They should be paid as we go, and not divvied out from greed funds. As it is, most entitlements are of the greedy, by the greedy, for the greedy. Inasmuch as we are incentivised to contribute to government-sponsored greed funds, most of us are a little bit greedy. We live in a greedocracy, not an economic democracy. A true democracy distributes public equity dividends – as the economy goes – as a human right.

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

***

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.

I was encouraged to hear Nicola Willis, National Party’s spokesperson on housing, make the key point that the central problem in New Zealand’s housing crisis is that of people being squeezed out of the private rental market. I made this point and more in detail earlier this year (Solving the Housing Crisis: Making Homes, 30 March). Note that being ‘squeezed out’ need not mean an eviction or a discontinuation of a tenancy; it could refer to people being squeezed out from entering the market in the first place, squeezed out by city land hoarders refusing to supply the market for rental houses.

Like other people asking and answering questions on this issue, Ms Willis didn’t venture down the obvious path, which is to question what is happening to the houses that people are being squeezed out of.

Clearly, if houses are being retenanted to other families, or purchased and occupied by other families, then this is not a societal problem (though it may be a problem for the affected tenant). What is a problem is the growing mass of ‘unrented rentals’ (an oxymoron, but most commentators continue to call untenanted houses ‘rentals’). Unrented rentals are in fact hoarded properties, and their owners – inappropriately called ‘investors’ – are ‘property hoarders’. While hoarders sometime ‘flip’ their properties, the incentives in place today are for ongoing hoarding.

The authorities refuse to count unrented rentals, let alone formulate policies to eliminate the problem of hoarders hoarding unrented rentals.

The solution to the whole problem is quite simple, although not politically palatable to the political class who are themselves a large part of the problem. Essentially, the hoarding of unrented rentals needs to be banned.

All residential houses should be either: rented to their owners (ie owner-occupied), rented to other households, or (eg some houses in coastal resorts) exempted (eg as holiday homes) through a publicly transparent process (and listed on a publicly accessible exemption register). All unexempted unrented houses need to be (by law) sold by their owners within a short (but practical timeframe), and auctioned (as if a mortgagee sale) if that timeframe is not met. If not sold, they need to be acquired by the public housing authority at a below-market price.

New Zealanders are largely ignorant of their country’s history. In the 1890s, a law was passed allowing for the compulsory purchase of hoarded land; indeed, it was the defining legislation of the Seddon government. (This followed on from land taxes introduced by John Ballance, Richard Seddon’s predecessor.) The compulsory purchase provision of land from speculators was not actually performed very often; the speculators understood, and acting in the shadow of the law, they subdivided and sold their properties to people who went on to make appropriate economic use of these lands. This was a liberal Liberal government, which strongly believed in private property rights; rights that were expected to be exercised responsibly. This was not Communism!

While New Zealand does need more newly fabricated houses and apartments, the construction of new homes should not be little more than an offset to the increase in unrented rentals that Nicola Willis spoke about.

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

contact: keith at rankin.nz

SOURCE: CORELOGIC: The CoreLogic Property Market & Economic Update for Q1 2021 reinforced the heated market conditions which led to the Government’s recent housing policy announcement.

Through the first quarter of 2021 sales activity remained high despite record-low listings, property values rose rapidly, and mortgaged investor participation surged from 27% to a record-high 29% share of purchases.

Kelvin Davidson, Chief Property Economist for CoreLogic, says the figures in the report are a clear “line in the sand” following the game-changing announcement by the Government in the final week of March.

“While the figures in our report largely pre-date the most recent housing policy changes, they are a valuable line in the sand as to where the property market was when the Government stepped in. Now the game has changed especially for investors, so we expect to start seeing through our various market measures how these changes flow through to our buyer classification data and ultimately, property values.”

Davidson says it’s now all about what happens next. “Buyer classification figures will be of most interest to gauge the fallout from the recent changes, particularly volume of investment purchases of existing property and new builds. Speculation about rents increasing and investors racing to sell rental properties is likely unfounded.”

Davidson also notes the mortgage deferral scheme coming to a close, with the majority of people now back on a form of loan repayments without undue strain. In addition, the unemployment rate fell in the fourth quarter of 2020 and at 4.9% is less than half the level that some thought it could be at this stage.

Mr Davidson says “These are positive indicators of the health of our economy, and of course the Australian travel bubble and vaccination programme are also encouraging. However, the economy is not out of the woods yet and we still face a slow recovery to get back to ‘normal’, while also having to face the reality of much higher government debt than before.

“Overall, the recent strength of the property market was always going to be unsustainable and a slowdown likely to occur in the second half of 2021 – the Government changes just reinforce that. We expect total property sales volumes to be lower in 2021 than they were in 2020 (and potentially fall a bit further again in 2022 too), with property value growth slowing quite markedly too – but not turning negative. Our expectation that price falls won’t be seen reflects underlying shortages of property around the country, although the incentives for investors to target new-builds should give developers the confidence to keep their output high.”

For more information or to read the full CoreLogic Property Market and Economic Update, visit www.corelogic.co.nz/reports

About the Quarterly Property Market & Economic Update

The quarterly Property Market and Economic Update for New Zealand delivers timely, detailed insights into the fundamentals that are affecting the residential property market. The report looks at property value growth, sales volume, time on market and rental growth, together with detailed charts and insights into housing market affordability.

Stories last week from Radio New Zealand:

Expert analysis: low interest rates vs soaring house prices, Nine to Noon, 15 April 2021.

And refer to:

• • Arthur Grimes: How to fix a broken Auckland? Add 150,000 homes to crash prices by 40%; The Spinoff, 4 July 2016
  • Bernard Hickey: PM says Arthur Grimes’ call to build 150,000 new houses in Auckland to produce a ‘supply shock’ that drives prices down 40% is a ‘crazy idea’, interest.co.nz, 4 July 2016

The first ‘podcast’ listed above includes interviews with two highly competent economists, University of Auckland property economist Michael Rehm, and former Reserve Bank monetary economist Michael Reddell. The hologram of another such economist, Arthur Grimes, was present also. The interviewer is Kathryn Ryan, certainly one of our more intelligent journalists, more prepared than most to dig a little, though prone to asking questions heavily laden with assumptions.

Kathryn Ryan to Michael Rehm: “Do you believe house prices will correct [ie, in times of low inflation, ‘fall substantially’], and how?”

Michael Rehm: “I have long believed that house prices will correct … around five years ago Arthur Grimes called for, with what seemed like madness [ref. John Key asking: “Where you’d get a 150,000 homes from overnight, I don’t know?”] at the time, for house prices to be engineered into a 40% drop … if we’d done it back then we’d be in a much better or healthier position now … house prices are completely out of whack with respect to fundamentals, especially incomes.”

It is tempting to interpret Arthur Grimes’ 2016 article as a King Canute exercise, in the true historical context of Canute’s best known act. Canute (aka Knut or Cnut) – King of England 1,000 years ago – is chronicled as having commanded the incoming tide to recede as a demonstration of the limitation of kingly powers; the message was meant to be that, despite being a king (and, I understand, a rather good king; grandson of Bluetooth, he was Cnut the Great, creator of England as a distinct polity), there were substantial limits to his and any other king’s powers. Unfortunately, Canute’s actions have been misinterpreted as Canute actually believing that the ocean could be turned back, and that he was the man who could do it. Grimes’ article, if not understood as satire, appears as advice to John Key to ‘turn back the tide’ by ‘flooding the market’ [please excuse the contradictory metaphors!]. Key, like the real Canute, was aware that he did not have such power; Key also strongly suspected that turning back the ocean by flooding the market was not entirely a good idea, even if it was possible.

Dr Rehm seems to believe that the Key-led government really did have the power five years ago to turn back the tide 40%, and that Key could have done it over a short time period; ie much less than the six years that Grimes mentioned. Further, Rehm is, in an important sense, historically wrong. In 2017, Phil Twyford – a foolish prince rather than a wise king – did believe that he had the powers of the mythologised Canute, and launched KiwiBuild to its inevitable failure. The Labour-led government of New Zealand did actually try to do something like what Grimes had satirically requested. Indeed, that attempt was just about the only genuine policy initiative of the 2017 to 2020 coalition government.

Ryan goes on to ask a couple of long questions, which include an assumption about the role of immigration in the 2013-16 house price inflation, and a reference in Rehm’s writing to a “Ponzi scheme” analogy, though she may have been confusing a Ponzi scheme with a the manic behaviour that fuels a speculative ‘mania‘ or ‘bubble’ (refer Kindleberger and Knoop).

Rehm’s main response – his ‘following the money’ point – was a good one; the price inflation this century of “land-house packages” – in the regions as well as in Auckland and Wellington –  was most determined by the “pumping of money” into the real estate sector. He blames commercial banks’ competitive lending policies, rather than interest rates or immigration or financial greed, to explain why “house prices are so disconnected from fundamentals”. [By ‘fundamentals’, Rehm means house tenants’ rents, and is correctly indicating that house price movements should follow movements in house rents.]. But he largely missed the international dimension of this money supply problem, which has included loans into New Zealand banks (eg ANZ Australia lending to ANZ New Zealand, and a high connectedness of many NZ residents to foreign sources of finance). Of particular importance is that Rehm has studied the pre-2008 real estate bubbles, and he therefore was aware of the need to downplay the role of very low interest rates in stimulating land-house bubbles.

Indeed, Rehm noted that, from the very first years of this century, there was a substantial change in monetary flows, though did not explain this change. My knowledge of countries’ changing financial balances since the 1980s indicates that – especially in the United States and the United Kingdom – the corporate sector became a ‘saving/lending’ sector rather than a ‘borrowing/investing’ sector. This meant that there was immense pressure on the household sector to absorb the supply of loanable funds that was no longer going into the businesses. That pressure on households still exists, and is exacerbated by government policies aimed at helping ‘first-home buyers’ onto the ‘property ladder’.

Re Michael Reddell, he, like Arthur Grimes, emphasises land supply at cities’ peripheries, and, in a return to satire, believes that in Wellington there is plenty of easily developed land along its hillsides; land “not much use for anything except housing” [at least he acknowledges that alternative land uses represent an important part of the cost of housing, though he failed to mention such things as water supply]. Like Rehm, and correctly, he notes that easy “monetary policy” (read ‘low interest rates’) is not to blame. And he correctly notes that what we call “the cost of a house” is mainly “the cost of the land under it”.

Reddell’s bugbear is “land-use regulation”. He says that “you have got to fix up the land market”. He fails to acknowledge the central axiom of classical liberal economics, which is that land by its very nature is scarce and that, as a consequence, rising populations raise the rental value of land and hence the price or ‘cost’ of land. While Michael Reddell is correct to note that land prices in much of New Zealand (and Toronto, Canada) are presently higher than can be attributed to any laws of economics, the solution is not to – like the mythical Canute – try to use demigod powers to conjure up more residential land. Even the Dutch – history’s premium land conjurors – understand the limitations of a land expansion strategy. All land, when repurposed, incurs an opportunity cost. In practice – in Auckland, and in Wellington’s residential corridors – it is the best horticultural land that is lost to land sprawl. (I understand that the Maya in Central America tried the same thing close to 1,000 years ago; subsequently their civilisation collapsed due to urban expansion undermining their food supply. Ancient Rome had to conquer Egypt to avoid the same problem.)

Ryan: “How does this central bank and government – who are working parallel to each other – exit this huge period of quantitative easing that has inflated asset prices everywhere, it’s the stock market as well. What is the endgame, the bond buying, the Reserve Bank prints money and buys government debt with that money through the secondary market; that keeps a lid on the cost of borrowing. Basically, that’s the means by which the government can spend and borrow. That stimulus is massive. At what point does it begin to have negative consequences?”

Reddell essentially bats the question away. Both economists already substantially (and correctly) downplayed easy monetary policy as any kind of problem. But the widely-alleged ‘big post-stimulus reckoning’ remains a big problem in the minds of many journalists, and indeed much of the public at large. With regards to the substantive ‘endgame’ question, Michael Reddell noted that it’s not really a problem; once the United States economy picked up in 2015, the Federal Reserve simply eased up on their monetary easing. I would note, though, that premature attempts from 2010, in the European Union including the United Kingdom, to force an endgame through fiscal consolidation (aka ‘austerity’) created substantially more problems than they solved.

The key problems embedded in Kathryn Ryan’s assumptions were: (i) that loads of printed money were going directly to the government (Reddell, properly, refuted that) when in fact it was only going into the ‘secondary market’ (pushing up the prices of existing bonds); and (ii) that there was in 2020 a parallel monetary and fiscal stimulus, whereas in fact there was only a monetary stimulus.

The New Zealand government, indeed, is fiscally austere to its core. Even with the opportunity to address substantial social and economic problems last decade by borrowing at record-low interest rates (and using its balance sheet to facilitate local government borrowing), the government – irrationally – has refused to budge; it has neither invested in our people nor our capital. Rather our governments have left the masses of available money to the land speculators to do with it whatever they have wanted to do; to create illusory wealth, and to borrow against that wealth to create a society characterised by unsustainable middle class imported consumption.

It’s actually too late now, given the supply chain and skilled labour constraints that New Zealand faces. Inflation – maybe substantial inflation – is likely to become a problem this decade; not inflation as a monetary phenomenon, but inflation as a ‘supply inelasticity’ problem. It is not only land in New Zealand that is supply constrained. New Zealand has become unbelievably dependent on (and cruel to) the foreign labour which Immigration New Zealand now belligerently seeks to keep out of New Zealand. And food supplies are not as secure as we might assume. The best horticultural land is under threat, and the need to export food to pay higher prices for our imported supplies is placing us in the traditional Third World predicament. The benign ‘terms of trade’ environment that has blessed fortune on us in the first two decades of this century is about to change.

Academic tunnel vision occurs when academics assume that the big truths – especially the truths required to drive public policy – derive only from their own discipline; they advocate remedies which involve extradisciplinary costs which they have not considered. We observe that both economists and public health academics hold to such siloed visions which discount wider truths understood through other academic disciplines. In present specialised times, this optical malady extends to academic sub-disciplines; for example, monetary economists versus agricultural economists, with the former ignoring truths which the latter could easily supply.

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These other Radio New Zealand podcasts, below, add to the commentary about the issues I have raised.

I provide no comment on these, other than to note that the 1989 New Zealand Reserve Bank Act was intended to cement into the public mind the monetarist (Friedmanite) proposition that “inflation is everywhere and always a monetary phenomenon”, a quote mentioned by Kathryn Ryan in her interview with Michael Reddell. While that supposition about inflation was dangerously false demagoguery in the 1980s, these simplistic notions haven’t entirely gone away. High inflation, like physical pain, is a symptom of something being not quite as it should be. In a sense, it’s is an aspect of the market economy’s immune system; pain from a fever, for example, is a side-effect of the body’s immunological response. Inappropriate anti-inflation monetary policies suppress the pain, the inconvenience, or indeed the natural cure. Such policies rarely address the underlying problem; indeed euthanasia – voluntary or involuntary – is one way of suppressing pain, a method regularly applied to domestic animals, for whom euthanasia is deemed an effective low-cost pain remedy. Friedmanite monetary policy was not unlike euthanasia, and, by and large, was applied to problems that were in the process of self-resolution.

• Food growing land being eaten up – report, Nine to Noon, 16 April 2021
• Reserve Bank’s independence under attack? Afternoons, 15 April 2021
• The role of banks in NZ housing market, Afternoons, 16 April 2021

And below is an important story relating to the actual demand for housing; a story that came out at about the same time as Arthur Grimes’ article:

• Generation Zero willing to forfeit quarter-acre dream, NZ Herald, 24 Jun 2016

Also refer to my: Solving the Housing Crisis: Making Homes, on Evening Report and Scoop, 30 March 2021.

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

contact: keith at rankin.nz

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.

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

contact: keith at rankin.nz

Renters have been thrown under a bus by the Labour Government this week. Now the dust has settled on the Government’s announced housing changes, economists are pointing to a likely rise in the cost of rents, and an increase in homelessness. The flipside, of course, is that homebuyers may be better off, if house price inflation is pushed down. All in all, the housing announcements look set to fuel greater wealth inequality in New Zealand, creating an even bigger divide between home owners and renters.

In analysing the announcement for the Guardian on Tuesday, I predicted house prices are likely to be stabilised or reduced, which will help middle-income first-home buyers, while those at both the top and bottom are set to lose from the new policies – see: Targeting New Zealand’s property speculators is popular, but won’t fix the housing crisis.

In this column, I focused on the Government’s decision to abolish the ability of property speculators renting out houses to deduct their mortgage interest payments from their tax calculations. This change will make investment in rental properties less attractive and it’s the part of Tuesday’s suite of policy announcements that is likely to have the biggest impact.

The growing consensus is that the flow-on effect will be landlords either putting up prices to recoup increased costs, or selling their rentals. Buyers are likely to be owner-occupiers, thereby reducing the number of rentals available, adding to the rental shortage. In addition, because owner-occupied houses tend to have fewer people in them, any shift of houses from the rental to ownership market will result in fewer people being adequately housed.

ASB chief economist Nick Tuffley was reported saying “You are more likely than not to see rents going up faster than what they already have been” – see Madison Reidy’s Landlords’ warning to increase rents not an empty threat – economists.

Yesterday’s Stuff newspaper editorial says renters are the “collateral damage” in the struggle to bring down house prices – see: Renters could be ‘lost generation’ in New Zealand’s housing crisis. Here’s the main point: “Property speculators will simply move their wealth elsewhere, first-home buyers will gain a greater opportunity, but renters could be left clinging to those lower rungs. And paying dearly for the privilege, with rents in Auckland and Wellington pushing a median $600 and more a week, and an average of $440 in Christchurch.”

The newspaper argues the policies announced this week will only exacerbate the plight of people who aren’t anywhere near being able to buy a home.

How much might rents rise by? It obviously depends on a lot of factors, including the ability of renters to pay more. ASB economist Mark Smith has done some modelling to show that landlord investors will be losing about $5000 a year from the interest deductibility change. If landlords were to pass this on to their tenants, rents could rise by about 30 per cent, although Smith thinks such steep rises would be unlikely – see Susan Edmunds’ Investors might pay 30 per cent less for properties after deductibility changes, says ASB economist.

The potential for rent increases is “inescapable” according to BusinessDesk’s Pattrick Smellie, who writes today that other government policy settings mean the rental market in New Zealand is particularly liable to responding with higher rental prices – see: Housing package: this term’s oil and gas ban? (paywalled).

Here’s his main point about this: “The NZ rental market has an apparently surprising capacity to bear higher rents. The government’s own Accommodation Supplement helps this along by subsidising low-income people who can’t afford what private landlords are charging. Low or no-interest student loans allow many landlords to charge outrageous prices for cold, dank, small rooms in elderly houses to kids who’ve only just left home.”

For those who think landlords are unlikely to put rents up, commercial banker Dean Nimbly says, these people “clearly haven’t met any actual landlords”, and he says “residential investors tend to act more as a cartel than as competitors – where one landlord increases rents, the rest will feel emboldened to follow suit” – see: On housing reform: less than meets the eye (paywalled). Nimbly argues that increases to recoup the new costs for landlords are likely because “demand for rental accommodation exceeds supply in most areas, meaning landlords face little constraint in increasing rents.”

Infometrics economist Brad Olsen made some similar arguments on TVNZ’s Breakfast, saying that “as long as there wasn’t enough supply of rental properties, landlords can continue to largely dictate prices” – see: Rents will increase, regardless of Government’s housing package — senior economist. But Olsen also adds that “Rents will go up, but they will not go up exponentially because of that policy only.”

Writing in the NBR, Dita De Boni argues that the new package of reforms will merely exacerbate the divide in New Zealand between renters and home-owners and amount to “middle class welfare” – see: Housing package doesn’t address irrationality underlying real estate market (paywalled). In this, De Boni sides with TOP leader and economist Shai Navot, who says the measures shift “a huge tax advantage to owner occupiers and those with cash.”

De Boni argues that “turfing out investors in favour of first-home buyers” will be bad for renters, and will simply “benefit the property-owning class to the detriment of everyone else.”

Leftwing blogger Martyn Bradbury says an economic win for homebuyers is a political win for Labour – see: Labour’s war on speculators – winners & losers. The other big political winner is the Act Party, who Bradbury says will gain “a vast new flood of angry rich Landlord Speculator members”. The political losers in this are National, who’s traditional middle class support, much of which shifted over to the Government at last year’s election, is now tied even more firmly to Labour.

Nothing positive in the Government’s announcement for renters

Advocates for renters have been very disappointed by the lack of changes that might improve the situation for non-homeowners. Renters United’s spokesperson Geordie Rogers went on TV on Thursday to ask: “Why did they not bring in any policy to help that one third of New Zealanders that are currently renting who are looking to buy a home?” – see 1News’ ‘I want them to have a future’ – Concerns renters have been overlooked in housing package.

Other advocates for renters have spoken out in an article today by Kate Green and Ethan Te Ora – see: ‘Not a priority’: Renters feel overlooked after Government’s housing announcement. In this, “Manawatū Tenants’ Union spokesperson Ben Schmidt said the package did nothing to help the majority of renters or families in emergency housing who needed change now.”

The article also quotes Ashok Jacob, of Wellington Renters United, saying experience shows that “landlords will put the rent up, whenever they can, for no real reason”, and hence this is likely to occur with this latest policy change. He also argued for rent controls or freezes to be implemented by the government.

Columnist Glenn McConnell also fears that “generation rent” has been left out of the Government’s consideration in their announcement, and rents will now rise. He suggests that instead of just being concerned with homebuyers, the Government needs to focus on the housing crisis for those at the bottom – see: Forget first-home buyers, the metric of success in the housing crisis is rental prices.

Individual renters are speaking out about their disappointment that the package entirely ignored their plight – see RNZ’s Housing package opens door to investor angst, renter despondency.

In South Auckland in particular, there won’t be much enthusiasm for the Government targeting first-home buyers – see Stephen Forbes’ Salvation Army questions Government’s new housing package. According to the Salvation Army’s Ronji Tanielu, the housing announcement is “not going to help beneficiaries and it doesn’t help in terms of transitional and social housing.” Similarly, Manukau Urban Māori Authority (MUMA) chairperson Bernie O’Donnell is reported as saying that “addressing the astronomical housing rents in the area with more social housing has to be a top priority.”

Justin Latif also reports that South Auckland housing advocate Andrew Lavulavu fears that rising rents will now escalate: “The average rent in South Auckland is now around $600 a week, but this time next year it could be around $750-850 a week. So we might see issues like overcrowding and health-related issues rise, as families move in together to pool their incomes” – see: Housing reforms could end up hurting South Auckland families, expert warns.

Labour’s response to rental fears

Housing Minister Megan Woods was challenged by John Campbell on TVNZ Breakfast about the position of renters being made worse by Labour’s decisions, and she responded that the Government had received “contested advice” on rents being made worse – see 1News’ Megan Woods challenged by John Campbell on consideration given to renters in housing package.

This article also reports: “Woods said she wasn’t expecting a spike in rent prices because the Government had ‘comprehensive’ housing policies which, for example, only limited rent increases to once a year.”

Finance Minister Grant Robertson has also deflected questions about rents going up by stating that if this happened, tenants can simply “go looking elsewhere”. This has caused something of a backlash – see Mark Quinlivan’s New Zealanders react after Finance Minister Grant Robertson says tenants will ‘go looking elsewhere’ if landlords hike rents. Similarly, see Rachel Sadler’s Social media users attack Jacinda Ardern over Government’s new housing plans.

However, there’s a case to be made that rents aren’t likely to go up. This is based on the experience of the UK, which enacted a similar policy a few years ago – see Dan Satherley’s Housing tax changes – what happened when the UK tried the same thing, and how we’re doing it differently.

Finally, for a bigger picture view on how the Government’s decisions over the last year have made life much worse for renters, and why “the average New Zealander effectively lost $54.59 for every hour they turned up to work if they did not own a home”, see analysis from Victoria University of Wellington’s Brendon Blue: Non-homeowners are paying the cost of the Covid recovery.

To the surprise of most pundits, substantial real estate price inflation has resumed, after a hiatus from 2017 to 2019. As to be expected, most of the usual tropes have been employed: a lack of supply, immigration (in this latest case returning New Zealanders), and low interest rates. The only missing trope this time is that of foreign buyers.

While none of these are wholly untrue, the real story is a ‘flow of money’ story, with the main issue being that money flows into certain places because it does not or cannot flow into other places. The second main issue is that financial bubbles have their own dynamic and momentum; so once started, bubbles can become quite difficult to stop.

We also should note that real estate bubbles – as monetary events – tend to coincide with sharemarket bubbles, and with exchange rate appreciations.

The central problem in 2020 is the inadequate flow of money into (and through) the government sector of the economy. In the absence of adequate lending into the government and real economy sectors, the money flows instead into the ‘bubble’ sector.

The 2003 to 2008 Bubble

From 2005 to 2007, the tradable section of the New Zealand economy was in recession; that’s the core section of the economy relating to businesses, such as primary industries and manufacturing, which compete internationally. Instead, in those years, an incipient bubble economy overtook the core economy. The Reserve Bank responded by tightening monetary policy, raising interest rates progressively towards a peak OCR (Official Cash Rate) of over eight percent early in 2008.

The underlying problem was the tradable-sector recession. It meant that money which would otherwise have been invested in the tradable-sector was diverted into the bubble sectors.

The actions of the Reserve Bank made the problem worse. By progressively raising interest rates, they kept pulling foreign money into New Zealand at a time when the core New Zealand economy was struggling, and no longer attractive to banks. This inflow of foreign money raised the New Zealand dollar exchange rate, further damaging the core tradable sector, and reinforcing the diversion of money into the bubble economy.

Many jobs were created in the growing bubble economy, and much tax was paid from the bubble economy. These were not the conditions which required the government sector to borrow money. So the New Zealand economy was awash with money, but neither the core economy nor the government were borrowing much of that money.

The money flowed into – that is, was lent into – the non-tradable economy of retail and real estate and financial (and related) services, despite high interest rates; indeed, because the high interest rates diminished the flow of money into the core economy, one can argue that, at that time, the house price and other bubbles persevered because of high interest rates. Further, if we go back to 2004 and 2005, it was probably higher interest rates that brought about the recession of the core economy that became New Zealand’s central economic problem of the years leading up to the Global Financial Crisis (GFC).

The 2012 to 2017 Bubble

This bubble came in the wake of the GFC, and was created in the global economy by the premature ending of ‘fiscal stimulus’ measures, given names such as ‘fiscal consolidation’ and ‘austerity’.

To get out of an economic depression, governments need to take the lead by running very large financial deficits. If done properly, much of this money flows indirectly into the core economy; employment and tax revenues increase, and government-sector financial deficits naturally fall to normal levels. This should be done in a way so that a country’s exchange rate does not rise prematurely; thus interest rates need to stay low for quite a long time.

A classic case of this recovery and expansion being done correctly was the 1935 to 1938 first term of the First Labour Government.

In the years 2012 to 2017, most countries’ governments did this incorrectly. While interest rates did stay low, there was a big push worldwide for governments to cut back, substantially, on their borrowing. A result was that many important government-led programmes were stifled, and an opportunity to reverse income inequality was lost. In many countries, money that should have gone into government social spending and universal benefits went instead into the bubble economy. In countries like New Zealand, this was reinforced by large inflows of foreign money relative to the size of their economies.

Bubble dynamics reasserted themselves this post-GFC time, with much lower global interest rates than in previous times. While interest rates are significant to the core economy, they are largely irrelevant to the bubble sectors. If an ‘investor’ with $200,000 can borrow $800,000 to buy a million dollar property, and then sell the property for $1,100,000 one year later, that’s a 50 percent return on their money; a substantial personal gain whether the mortgage interest rate was four percent or ten percent.

Bubbles do come to a natural hiatus after about five years. From 2017 to 2019, the capital gains from property speculation diminished, less money was flowing out of China and other saver economies, and conditions in the core economic sectors in the world became more favourable for bank lending. Economies grew, with 2019 becoming a very successful year in the global economy; though with the proviso that substantial environmental problems, inequality issues and identity issues came to the fore of our concerns. (And Brexit completely dominated United Kingdom politics.) In New Zealand in 2017, a new Labour-led government created sufficient uncertainty to quieten a bubble economy that was already running out of puff; and legislation prohibiting foreign purchases of New Zealand houses had some direct impact on dwelling purchases as well as indirect impact through perceptions that capital gains would diminish.

In New Zealand, neither immigration nor housing supply were the main causes of real estate inflation. In an economy with a growing population and a housing shortage, the first symptom should be an increase in market rents. Rising house prices should then follow, as landlords’ yields increase. That’s not what happened. Rather house prices increased first; rents eventually followed, though many property ‘investors’ did not care so much about their rental income because increasingly their ‘wealth’ came from capital gains rather than from collecting rents.

The actual housing crisis in New Zealand had little to do with house prices; and much to do with inequality, a lack of social housing, and a broken private rental market. In the 2017 to 2020 period, social housing and the private rental markets have improved in many cities; in Auckland there are many newly constructed apartments, recently completed or still under construction, sited close to public transport nodes.

The 2020 Bubble

At a time of Covid-19 pandemic emergency, there were few expectations that a property bubble could happen. But the conditions for such a bubble soon emerged.

The first thing to note is that the Reserve Bank is not the problem. Not only is it following its mandate by expanding its balance sheet, it is seeing that the bigger picture requires such an expanded balance sheet in order to play its part in preventing a pandemic from becoming a great economic depression. Under current conditions, monetary policy will not be able to induce the inflation that it is mandated to achieve – indeed that mandate is a case of bad social science (a story to be addressed elsewhere). If substantial inflation does recur in the world – and it might sooner than most of us expect – it will be due to covid-induced supply-chain breakdowns in the coming few years; nothing to do with monetary policy.

We need to picture a (monetary) basin with three plugholes; yes we can use water flows as a good analogue for monetary flows (its called liquidity). When more money is required for the economy, the Reserve Bank supplies the basin with money by expanding its balance sheet. The first plughole leads to the ‘real economy’, which is households buying goods and services and businesses making and selling them. The second plughole leads to governments – the government sector including local governments – the ‘fiscal’ economy. The third plughole leads to financial markets; to an inherently speculative ‘bubble economy’ that includes the market for urban land. The draining of the (monetary) basin represents the injection of necessary money into the economy.

The three plugholes are:

1.  real economy plughole (private sector)
2. fiscal plughole (public sector)
3. bubble economy plughole (speculative sector)

The Reserve Bank’s effective mandate is to ensure a sufficient flow of money into the real economy. But the commercial banks are the gatekeepers (plughole keepers!) which facilitate or inhibit the draining process.

The economy we inhabit can be likened to a human ecosystem below the plugholes, and the economy needs to be lubricated by sufficient quantities of money. Economic contraction (eg recession) occurs when the real economy is under-lubricated; inflation, on the other hand, may occur when the economy is over-lubricated. The bubble-economy is the part of the human ecosystem that is most susceptible to inflation; the real economy is usually able to slow down the circulation of money when it is over-lubricated, thus averting inflation.

The commercial banks manage these three plugholes, though unevenly. The extent of their gatekeeping relates to the different grades of ‘security’ that accompany different types of bank lending. Bank gatekeeping constrains the ‘real economy’ plughole, because ordinary business finance is the least secure form of lending. The fiscal plughole is subject to minimal bank gatekeeping, because governments’ legal powers to tax constitute a very high level of financial security. Bank gatekeeping is reflected in interest rates; ordinary businesses and consumers (eg via credit cards) pay the highest interest rates. Governments generally pay the lowest interest rates.

Typically, economic recessions follow financial crises. During financial crises, the ‘bubble economy’ plughole closes, precipitating the recession. This induces a loss of spending confidence, as people and businesses exposed to the bubble economy sharply retrench their spending. So the real economy plughole also closes; not fully, but substantially. This diminished monetary flow into the real economy is partly a result of less business and household desire to borrow, and partly a result of more stringent gatekeeping by the lending banks.

In such a recession, the ongoing success of the economy depends on the fiscal plughole. In 2009 we saw all governments open the fiscal plughole to save their economies – it was called ‘fiscal stimulus’. The New Zealand government response was comparatively muted; the New Zealand economy largely recovered as a result of new spending enabled by other countries’ governments’ stimuluses.

In 2020, the economic contraction had an unpredictable ‘exogenous’ cause rather than a predictable financial cause; namely, the Covid19 pandemic. In this case the bubble plughole never closed; that is the key point of difference this time. The private economy plughole, however, in 2020 closed to a similar extent to which it closed in late 2008 during the GFC. In response, the fiscal plughole briefly opened wide in New Zealand early in 2020, but then it closed again.

The result, by mid-2020, was a national economy with a basinful of new money, and only one substantially open plughole – the bubble plughole. So, guess what? The money drained through that plughole into the bubble economy. There was nowhere else for that money to go.

Who is to blame? Well, maybe the banks could gatekeep less re the real (private) economy plughole. But much of the private economy is in a balance sheet recession, so is not presently confident to borrow much, even if subject to reduced gatekeeping. Unsecured distress lending imposes high financial risks to the commercial banks.

The problem is the Government; in particular, the Minister of Finance. The fiscal plughole needs to be wide open, at least until the private economy plughole opens sufficiently as a result of increased governments’ contributions to the real economy. To discourage money from draining through the bubble plughole, and while awaiting the real economy plughole to reopen, the solution is one of fiscal policy. Opening the fiscal plughole is the solution.

The irony is that – by setting historically record low interest rates – the Reserve Bank is imploring both businesses and governments to borrow. The trouble is that businesses cannot borrow more (due to gatekeeping, and to their own balance sheets) and the government will not borrow more. The New Zealand government chooses to resist the strong price signals from a Reserve Bank which is implicitly begging the government sector to take the lead to defuse the now out-of-control bubble economy.

What the Government could do, this year

The newly-elected government is committed to passing legislation this year to reintroduce a 39 percent tax rate on high marginal incomes. While this tax increase may be an unnecessary expedient that complicates matters, we have to accept that this will happen.

So, as part of the same fiscal package, the government could and should also do the following, to be implemented on the same date as the new income tax bracket:

1.  Replace the lower income tax brackets with a Basic Universal Income of $9,080 ($175 per week) per year to all economic citizens (resident citizens, resident permanent residents, and other people presently resident in New Zealand with working or student visas. For present beneficiaries, the first $175 per week of their benefit would become unconditional. (This provision would have no immediate financial impact on either beneficiaries or on persons earning more than $70,000 per week. By ‘lower tax brackets’, I mean the 10.5%, 17.5% and 30.0% brackets.)
2.  Increase jobseeker and assisted living benefits by $25 per week, and accommodation supplements across the board by 10%. (This provision would mean that all such beneficiaries would be at least $25 per week better off.
3.  Place a substantial ‘stamp duty’ tax on all second homes, all rented homes, and all homes owned by trusts.
4.  Introduce a ‘good landlord’ voluntary warrant of fitness for rented houses, and exempt complying landlords and trusts from the new stamp duty.

The Basic Universal Income (BUI) and benefit increases, in an economy such at that in New Zealand at present, would soak up much of the money otherwise flowing into the bubble economy. The BUI would also free up labour supply – especially for young people presently constrained by the requirements of conditional benefits. And it will free up government agencies to help those people and families with more complex needs. The BUI will ensure that all adults in a household – including recently unemployed women with employed partners – will have unconditional access to a basic income.

The stamp duty will create a disincentive for speculative ‘investor’ money to flow into the real estate market. This money is pushing up prices in such a way that only people who already own houses – or whose parents already own houses – are themselves able to buy houses; and this money is treating houses as a form of financial wealth rather than as a place to call home.

The landlord warrant of fitness exemption becomes a ‘good landlord subsidy’, a way of using a monetary incentive to address the emerging problem of slum housing in New Zealand’s cities.

Summary

The present real estate price bubble is easily explained as the result of a lack of ‘rational’ fiscal policy. In economics, it is rational to respond to price signals; in this case the governments of New Zealand are not responding rationally to the lower interest rates made available to them, and are instead watching as much of the money they could and should be borrowing flows into the secondary housing market.

While there are many things the government could be spending money on – including higher wages in female intensive industries such as health and education – the Basic Universal Income and benefit increase cited above represent the best immediate uses of increased government borrowing.

The improved fiscal policy suggested is a case of win-win, immediately easing the stresses of daily life in today’s uncertain times, while also defusing the out-of-control real estate market.

I am not confident that the government will choose this or any other win-win option. Rather I believe they will choose a lose-lose option; continuance of unnecessary economic insecurity and escalating house prices.

The Government has been widely panned over its major announcement yesterday on housing. There are a few positive takes on the “reset”, but generally it has been viewed as an embarrassing backdown at best, or at worst a sell-out of those needing the housing crisis addressed. One political journalist has even branded yesterday’s announcement as “easily the worst day politically” for the Labour-led Government so far.

This criticism isn’t just politicking from conservatives or the right. The most severe criticism has come from progressives and the left. This isn’t really surprising because – as with Jacinda Ardern’s capitulation on the capital gains tax – the announcement suggests the Government has essentially given up on bringing transformational change to the housing crisis. Many of those who might be sympathetic or supportive of the Government are those most deeply disappointed with what Housing Minister Megan Woods is now doing with KiwiBuild.

To get an idea of critical reaction from the political left, it’s worth reading the No Right Turn blogpost: Not impressed. He calls the reset a “broken promise” and is disappointing about the tinkering announcements, suggesting they might actually make the housing crisis worse.

He concludes that the reset shows Labour, as with other political parties, simply isn’t interested in solving the housing problem: “while the obvious policy we need is a mass house-building programme of state and affordable homes, to crash both house prices and rents, the property owning class – which includes almost every MP – don’t want that, because it would devalue their assets and their landleach income-streams. So instead we get this sort of bullshit, spending billions on producing the impression of action, while actually doing nothing much”.

It’s not only leftwing bloggers who are unimpressed. For a scathing assessment of yesterday’s announcement see Newsroom editor Bernard Hickey’s latest column, Young renters just got double toasted, in which he argues those suffering from the housing crisis have now been abandoned by this government.

Hickey argues that the jettisoning of the basic KiwiBuild promise was entirely unnecessary: “to abandon the entire target for the entire 10 years is simply silly because the first year’s target was missed. Urgent and large scale action by the Government could have cleared the way for a 100,000 house build over the next 10 years. Labour just gave up at the first hint of trouble”.

As to all the minor announcements made yesterday, Hickey thinks they’re a “distraction” meant to help sell the capitulation to the public: “It also tried to dress the broken promise by making it easier to use more KiwiSaver money for home deposits and to be able to borrow more to buy a first home. Neither will sweeten this dead rat much. It’s more of a rotting and hairy cat.”

Hickey says the conclusion we can draw from the KiwiBuild reset is that Ardern’s reputation is now settled, and it goes to “prove she is just another transactional smile-and-wave politician who believes she is better at wielding the status quo than the other lot. She has now forfeited any right she had to talk about being transformational and claiming ownership of a generation’s dream.”

Similarly, in an opinion piece for RNZ, I’ve argued that Labour and its coalition partners now risk losing support from their core supporters who were relying on seeing real progress on the housing crisis, and those struggling with housing might legitimately feel “ripped off” – see: Government should be held to their 100,000 KiwiBuild promise.

Here’s my conclusion: “much like the CGT backdown – the government’s other key policy to deal with the housing crisis – it will shake the confidence of supporters who are wanting to see the transformational change promised. The Year of Delivery becomes an empty slogan for those depending on real change. When it comes to next year’s election, the governing parties might find their lack of courage leads to fewer of their supporters being mobilised to vote… Having won power in 2017 on the basis of promises like KiwiBuild, it would be apt if the Labour-led government lost that power in 2020 because of their failure to deliver.”

RNZ’s Tim Watkin points out that this failure of delivery and ambition is what Labour used to criticise the last National Government for: “Twyford was famous for mocking previous Minister Nick Smith by saying ‘you can’t live in a consent’. Truth is, you can’t live in a reset either” – see: You can’t live in a reset.

Watkin labels yesterday’s announcement a “disaster”, saying “amidst the announcements came the smell of burning rubber as the government preformed some of the biggest political u-turns you’ve ever seen.” Green co-leader Marama Davidson was also at the announcement, claiming the KiwiBuild reset put housing “back within the realm of lower income people”, but Watkin says “It’s hard to see how.”

Political journalists have also been damning in their reports. Henry Cooke, who has probably written more on KiwiBuild than any other journalist in recent years, says: “KiwiBuild is now a shadow of the huge promise it once was” and that the reset was a “serious humiliation for the Government” – see: KiwiBuild emerges from nine months in the shop a shadow of its former self.

He disputes many of the claims of the Housing Minister. For example, on the notion that the Government is still delivering a significant house ownership programme, he says: “that’s like selling someone a car and delivering a scooter. They both serve the same purpose, but the product is not what was said on the tin.”

As to Megan Woods’ new mantra that “KiwiBuild is a lever, not an outcome”, Cooke says: “That’s fine and good if you’re looking at the housing market from the perspective of a minister, but if you’re a young buyer who thought with 100,000 homes there was sure to be one for you in the mix, KiwiBuild sure as hell was the outcome, and an outcome you wanted. Bad luck.”

Cooke also outlines how the Government is failing to deliver in other areas of housing. And some of the new announcements seem half-baked at this stage – for example, “the fact this progressive home ownership plan has still not gone to Cabinet beggars belief.” And he says that the changes to eligibility will not “change the problems with KiwiBuild thus far.”

As to cancelling the 100,000 house target, and the refusal to replace it with anything new, Cooke says: “Every Government breaks promises made during elections. But few break ones this big and this specific.”

This broken promise will come to haunt Labour in the future, according to Claire Trevett: “it has given Labour a credibility problem. This will cause Labour problems in future elections when they put up similarly ambitious policies. Ambitious is a kind way of saying unbelievable. It gives voters greater cause to doubt whether they can actually deliver. It has, in short, become Labour’s folly” – see: The lesson of KiwiBuild, the Little Engine that couldn’t (paywalled).

The failure to adopt a new target is also a problem for accountability she says: “The 100,000 figure was replaced by the rather more nebulous ‘as many homes as we can’. That is far less pithy – but also much harder to hold the Government to account for.”

This nebulous promise is highlighted by Herald political editor Audrey Young who says: “It is not a line that would be acceptable in many other policy areas. Imagine the farmers saying: ‘We will lower methane emissions as much as we can, as quickly as we can'” – see: KiwiBuild reset – Megan Woods gives masterclass in surrendering to failure (paywalled).

Young says this abandonment of targets is confusing, because in other policy areas Labour is adamant about the importance of such goals – for example: “It is clear the Government can’t make up its mind about targets. It’s good for child poverty reduction to have an overall target and short-term targets, so much so that it is now a statutory requirement to set targets.”

She also marvels at the chutzpah of the new Minister of Housing in selling such negative news as being so positive: “Woods gave a masterclass today in political communication that should impress not only her hapless predecessor, Phil Twyford, but every other member of the Cabinet that could be prone to trouble. Let’s not call it a reset. It was backdown to behold, a political surrender painted as showing courage and honesty to voters.”

Little attention has been directed, so far, at the logic of stripping a fifth off the KiwiBuild budget and putting it into a separate programme for the Greens’ nebulous “rent-to-own” scheme. But Newsroom’s Marc Daalder covers this in his article, KiwiBuild reset shows how badly policy was bungled.

Here’s his main point, questioning the scheme: “the Government concedes that only 4,000 people are expected to benefit from this. That’s 20 percent of the KiwiBuild budget put towards helping put people in just 4 percent of the now-scrapped 100,000 homes. While that money will eventually be paid back to the Government and recycled into KiwiBuild, that could take years. This raises the question: wouldn’t the money be better spent on state housing?”

In terms of Megan Woods’ decision to scrap plans to continue with hundreds of KiwiBuild houses and sell them on the open market, Daalder says: “the entire situation underscores how significantly the Government’s flagship policy was bungled.”

For economist Gareth Kiernan the reset was a missed opportunity, and he laments the “sticking-plaster solutions” that were announced – see: KiwiBuild reset proves Government still doesn’t get it. One preferred solution, he says, would have been to focus more on state housing supply: “the Government has missed the chance to shift its building programme from the middle-class welfare of KiwiBuild to concentrate on social housing, where the needs are evident.”

Kiernan also suggests that other more fundamental problems remain in the housing market, which he argues the Government are not grappling with – especially partnering KiwiBuild with mass construction technologies.

It’s not all bad for the Government. Some commentators have been supportive of the KiwiBuild reset. For example, today Newstalk ZB’s Mike Hosking says the Housing Minister has been sensible – see: New KiwiBuild Minister Megan Wood showing signs of common sense.

Today’s very congratulatory editorial in the Dominion Post makes the argument that modern governments aren’t equipped to make significant market interventions like KiwiBuild, and therefore Megan Woods is to be commended for recognising this and abandoning “unrealistic” goals – see: After the fantasy, Woods restores some sense in KiwiBuild.

The editorial points out the gist of the new KiwiBuild approach: “The reset KiwiBuild will help fund buyers into new homes, rather than build those houses for them.” Therefore: “The rethink is less a reset and more of a recognition that modern governments no longer have all the answers. Nor the means. They have steadily withdrawn from the many markets and industries they once controlled and must use greater wisdom to understand what they can change, and how to go about it.”

Former CEO of the Property Institute of New Zealand, Ashley Church, awards the Government with a 10 out 10 mark for scrapping the Kiwibuild targets, and a 10 out of 10 for making it easier for buyers with smaller savings to get together a deposit to buy houses on the open market – see: 5% deposits for first home buyers will remedy housing travesty.

Church says Woods “has delivered. The main features of her near-total rewrite of the previous policy have rendered it virtually unrecognisable – but the changes are mostly pragmatic and bring KiwiBuild more into line with the commercial and cyclical realities of the market.”

Finally, for humour about the reset, see The Civilian’s parody news report: Government says it will now build just one really nice home.

There’s an argument that with KiwiBuild so utterly discredited as the Government’s flagship policy for this term in power, Labour should now be shifting quickly to something more radical and progressive. State provision of quality and cheap rental housing is still the best remedy for the problems of housing-related poverty and homelessness. Therefore, perhaps the state housing sector – which has largely been neglected not just by this government but previous National and Labour administrations – should become the focus of efforts under the new “housing reset” following last week’s Cabinet reshuffle.

This would effectively mean a shift to the left, which is what I argued last week is a possibility, given that Megan Woods might well be “the first genuine left-wing housing minister in ages” – see: Is the government now more serious about the housing crisis?

Responding to this, Chris Trotter has made the case for what a leftwing shift in housing and state housing policy would look like: “It would kick-off with the complete scrapping of KiwiBuild. In its place, a state-planned and executed programme of state house construction would be announced. Instead of 100,000 ‘affordable homes’ for the frustrated sons and daughters of the middle-class, Woods’ programme would commit to constructing 100,000 state houses for the nation’s poorest families to move into. A state-owned construction company would be required, along with state-owned prefabrication plants. Such a programme would necessitate casting aside practically all of the policy assumptions of the last 35 years” – see: If Megan Woods really is a left-wing housing minister, then pushing for a left-wing shift in housing policy is the last thing she will do.

Trotter goes further in explaining the theory of a leftwing state housing policy: “The construction of so many housing units, their rentals fixed at 25% of the tenant’s income, would very quickly impose massive downward pressure on rents. The business model of the ordinary property investor would be wrecked – forcing more and more of those landlords at the margins to sell-up and exit the market. With more and more properties being offered for sale, prices would plummet. The very people for whom KiwiBuild was originally created would now be able to purchase their first home at an affordable price. By placing its thumb firmly on the supply side of the market’s scales, the state would have solved the housing crisis. At least, that is how a “left-wing shift” in housing policy is supposed to work.”

However, Trotter doubts that the current administration would be bold enough to deliver such a traditional policy mechanism. Furthermore, they’d have to be willing to put up with a lot of negative reaction from the business community and Labour’s middle class voters etc.

Given the worsening housing crisis, it’s not only leftists calling for this Government to get serious about state housing. The OECD report out last week about the New Zealand economy and wellbeing was explicit in recommending that in the area of housing, the Government “should do more to focus on people on low incomes”, and that this meant they should “reallocate money from KiwiBuild to social housing” – see Jason Walls’ The OECD says the Government should make significant changes to its KiwiBuild policy.

Phil Twyford responded to this call for a shift from KiwiBuild to state housing by pointing out the key problem with this: “The idea of just transferring the KiwiBuild allocation across to public housing doesn’t really work because it costs a lot of money to build public housing, as you continue to own them.”

Nonetheless, the OECD report’s primary author, Andrew Barker, has pointed out that in New Zealand, “social housing supply is low by international comparison and there are poor outcomes for at-risk groups, including overcrowding, low quality housing and high homelessness” – see David Hargreaves’ OECD report notes lack of success of KiwiBuild programme and says Govt should focus more on low-income renters.

He also explained that resources directed at state housing would be more beneficial than being directed at more wealthy citizens, saying “Better targeting of government programmes (including KiwiBuild) through focussing more on low-income renters would enhance overall well-being”, and that “Further expansion of social housing in areas where there are shortages has the potential to deliver improvements across a number of well-being dimensions, including health, education and life satisfaction”.

Even on the political right there now seems to be a realisation that an increase in state houses needs to occur. For example, National’s Housing spokesperson Judith Collins is in favour of a greater public housing build.

And rightwing political commentator Matthew Hooton has long argued that the Government must think bigger about supplying housing than the limited and piecemeal approach of the Labour Party. Like Trotter, he suggests that instead of the 10,000 new state houses promised by the Government, this should be escalated to 100,000.

In his latest column on the matter, however, he adds a rightwing element to such a massive state house-building programme: “Better still, [Twyford] would have implemented KiwiBuild as the construction of 100,000 new state houses which would then be sold to tenants under a rent-to-buy scheme. While the Labour left would have whined about privatisation, such a scheme would be a beautiful fusing of the politics of Michael Joseph Savage and Margaret Thatcher” – see: Why Housing Minister Phil Twyford must go (paywalled).

Any sort of mass programme of state building is unlikely, according to Newsroom’s Bernard Hickey, who argues that the current government is just too obsessed with leaving the private sector to fix the housing crisis (even via KiwiBuild, which essentially relies on the private sector), because they don’t want to have to spend money – see: How Phil Twyford lost housing and why KiwiBuild failed.

According to Hickey, the Government is “mindlessly” stuck in the “dark days of late 1980s”, keeping to rightwing fiscal policy that is “horribly out of date” and is precluding them from properly investing in things like state housing.

Hickey says this conservative thinking from Ardern, Robertson and Twyford is having horrible consequences: “They fear an unknown and yet-to-exist crisis in the future when a very present and known crisis exists right now and is right in front of their noses: a massive shortage of affordable and healthy housing that has consigned 250,000 kids to such poverty that 40,000 of them get so sick each year with respiratory and skin conditions they end up in hospital. Their parents are mired in working or non-working poverty that is impossible to break out of without affordable and healthy housing.”

So why is the lack of state house building under the current Government not causing outrage? Perhaps it’s because many people actually mistakenly believe that a massive building programme is already underway. While it’s certainly true that Labour is delivering more than National – which is hardly a surprise or something that Labour supporters can really see as a triumph – it’s still on a tiny scale and one that is more in line with National’s efforts than with current needs.

To get a sense of the increased state housing build, see Henry Cooke’s article, While KiwiBuild falters, state house build rockets ahead with ninefold increase. This article explains how it’s possible that the Government can argue there has been a massive increase in state housing: “There are 2700 state homes under construction, with 1389 due for completion before July 2020. In June 2016 just 282 homes were under construction.”

Although the National Party might quibble with those figures – especially since many of the new builds are actually houses planned and consented by the previous government – there has definitely been an increase. The problem is, given the burgeoning population and greater need resulting from worsening affordability of home ownership, it’s a tiny increase.

Significantly, even under Labour, the proportion of state houses will remain at its lowest point since the early 1990s. Back then, there was one state house for every 50 citizens, and now there is only one for every 70 – for more on this, see my Newsroom column from late last year: Will state housing fix what KiwiBuild can’t?

And many of the new state houses are merely replacing older state houses that have been demolished, meaning that the net increase of state houses is somewhat less impressive than the Government likes to suggest. The new builds also tend to be much smaller than previous state houses.

What’s more, when Housing New Zealand demolishes state houses, the new developments that replace them often involve the sale of some of that state housing land to private developers and KiwiBuild homes – see Mike Treen’s Phil Twyford the privatiser of state assets.

Added to that, not all “new social housing” is actually new. The incorporation of community and council housing into “public housing” means that the increasing house number count might be much less than is presented to the public. For example, earlier in the year Isaac Davison reported: Only one in four of Government’s new public housing places in Auckland are new builds. In this, it is explained that a large proportion of the supply of “new public housing” is actually “redirects” in which properties sourced from the private sector or “non-government providers – like councils or charities – are moved on to government funding”.

The community housing sector is also critical of the way the Government is funding social housing provision, which they say is benefiting the private sector developers. Isaac Davison and Ben Leahy have reported on this, citing one community housing provider worrying that “that Government funding will be pocketed by private owners” – see: ‘Short-sighted’: Govt looks to developers to ramp up social housing – angering non-profit groups.

The community sector is also disappointed that the Government isn’t funding them to build more social housing. Todd Niall reports: “Social housing providers in Auckland say they are being restricted by the absence of capital funding, once provided by the Government. One of the largest said it would not be able to continue building new homes, once its current programme of 167 homes is completed. The body representing 21 Auckland providers said the Government appeared to now be ignoring them, at a time when they could do more for those needing affordable homes” – see: Auckland social housing developers say building will stop because of government funding vacuum.

Meanwhile the housing affordability crisis for those at the bottom just gets worse, as indicated by the official state housing waiting list, which has doubled over the last couple of years and is at its highest point for a decade – see Henry Cooke’s Public housing waitlist climbs to 11,655 as winter begins to bite. And in addition to the increased numbers waiting for housing, waiting times seem much longer.

The factors behind the increase in state housing demand are discussed in Katarina Williams’ article, How NZ’s social housing problem is expected to worsen before it gets better. This also explains why “1261 public houses across the country were sitting vacant at the end of March”. And Auckland Action Against Poverty coordinator Ricardo Menendez March is quoted saying “The Government needs to ramp up the target of state homes being built if it is serious about making a dent on the social housing waiting list”.

And while the proportion of state houses continues to shrink, the private sector just becomes more and more profitable, with landlords continuously putting up rents, turning the “housing crisis” into a “rental crisis”. The latest report on this, out today, says that rents in the capital are growing twice as fast as wages – see Julie Iles’ Wellington rent rises outstripping wages and it’s tipped to get worse.

Finally, the Government’s low ambitions on state housing are putting lives at risk. This is best illustrated in a harrowing RNZ Checkpoint story and interview by Lisa Owen – watch: Working poor: The long, excruciating wait for a state house. This follows the story of one family, on the waiting list for more than four years despite their youngest child recently having “meningitis, prompting a doctor at Middlemore Hospital to write a letter saying the family’s overcrowded conditions were putting the baby’s health at risk.”

Audrey Young emphasises the ruthlessness of Ardern’s Cabinet reshuffle in the Herald today, saying: “for all her kindness, the Prime Minister can be ruthless. What happened to Phil Twyford was nothing short of a political humiliation” – see: Jacinda Ardern shows ruthless streak in Cabinet reshuffle.

Young says Twyford was removed from more housing portfolios than was necessary: “Ardern said housing was too big for just one minister, which is nonsense. She could easily have left Twyford in charge of state housing. But even that has been taken from him for reasons that Ardern could not properly articulate but it effectively means that his reputation is so trashed, she does not want him associated with something so precious to Labour.”

Regardless of any progress he had been making, Young suggests the tide of opinion had turned so strongly against Twyford that he had to go,: “he had become so wounded that Ardern would not trust him with the “reset” of housing policy. She wanted not only a new set of housing priorities but a new face. He was sacrificed for the greater good of the Government and importantly the Labour Party.”

Perhaps there should be some sympathy for Twyford. Young seems to suggest this is the case: “her decision is about the optics, not the substance. Twyford has been removed from the job just as he has finally got the shop in order, and just as he is getting to grips with the reality of the public-private housing partnerships there are essential to large-scale housing production. Megan Woods won’t be coming in to crack the whip and suddenly double the output of Kiwibuild houses. Anything that is produced under Woods’ watch in the next 18 months in whatever rebranding Kiwibuild undergoes will be from the commitments and planning previously undertaken by Twyford.”

The notion that Twyford has been the sacrificial lamb to the unfixed housing crisis is also emphasised by Henry Cooke, who says “Twyford himself had started to be associated with that policy failing in the eyes of the public – so Jacinda Ardern decided to sacrifice her minister rather than the entire policy” – see: KiwiBuild: Can Megan Woods do what Phil Twyford could not?. He says that, despite Ardern’s spin, this is “undoubtedly a demotion” for Twyford, and a real blow for his career given how much he had staked on housing and KiwiBuild.

Cooke says the housing crisis is still in full effect under Labour, and now the new Minister Megan Woods “has the luxury of designing a new version of KiwiBuild that is actually doable with the help of many officials and a relatively clean slate”. Not only is the name of “KiwiBuild” facing abolition – all the Government’s existing housing promises are up for axing. Expect to see more U-turns – but the long-awaited “reset” is now even further off.

Similar arguments are put forward by Stacey Kirk, who says “Ardern has scrubbed the minister to keep the policy. Phil Twyford had become so tainted by the KiwiBuild disaster, the only way the prime minister could salvage the policy brand – which still polls extremely well – was with a new minister with a fresh mandate to pull it apart” – see: Phil Twyford in Jacinda Ardern’s sights as first reshuffle squarely lands on Kiwibuild failure. She adds that it was clear Ardern “no longer had confidence in his ability to deliver a solution to the housing crisis.”

Twyford is therefore paying the price, Kirk says, for remaining dogmatic and not listening about the need to fix KiwiBuild: “The policy was quite obviously a dead horse that Twyford refused to stop flogging. Twyford’s failure is not born of incompetence, so much as it is a blinkered obsession to some of the more problematic – and probably ideological – aspects of the KiwiBuild policy. Ardern alluded to as much in announcing her decision. As much as Twyford may have been placed in an invidious position with a tough policy to create, he was the minister and ultimately accountable. If it wasn’t working, he had many opportunities to make the required changes. His officials expressed reservations throughout, but he persevered when he should have cut and run.”

For Jane Patterson the reorganisation of the Housing portfolio “shows the commitment of the government to make progress”, and she spells out the changes like this: “the fact Prime Minister Jacinda Ardern now effectively has five ministers with some role in housing shows the breadth of the challenge – not just the affordable house building programme but in homelessness, state housing and the limitations on development under the Resource Management Act” – see: New housing team eases Phil Twyford’s indignity.

But some are questioning the logic of the housing portfolio reorganisation. For a start, it is all very reminiscent of John Key’s failed reorganisation in 2014 when his government was also under pressure for failing to deal adequately with the housing crisis.

This is best conveyed by Toby Manhire, who recounts how in 2014 Key announced “there would be a new ‘ministerial team’, with the portfolio split between three senior ministers. Paula Bennett got social housing. Bill English got Housing New Zealand. Nick Smith had been under mounting pressure over a housing crisis which the government obstinately refused to call a housing crisis. He got building and construction, in what seemed like a face-saving consolation prize” – see: Housing crisis history repeats as Ardern breaks up the housing job.

Manhire then fast forwards five years and points to National’s Housing spokeswoman Judith Collins arguing that splitting the portfolio “looks like panic”, noting that “She could have been describing either the 2014 or 2019 carve-up.”

Collins also made a critique of the split up this morning on the AM Show, saying: “We’ve got all these ministers now, it’s split into three, but at the same time the Government has a Bill going into Parliament called the Kāinga Ora Bill – what that does is it brings Housing NZ, KiwiBuild and the Ministry for Housing and Urban Development all together – so you’ve got all the agencies together, but all the ministers split. It’s bizarre” – see Housing job split despite Bill to combine them.

The same article explains the merger of the housing agencies: “Currently at the select committee process, the Kāinga Ora – Homes and Communities Bill would disestablish Housing NZ, bringing state homes under a new umbrella organisation called Kāinga Ora – Homes and Communities, which would also have responsibility for urban development.”

Act leader David Seymour has also challenged the lines of responsibility and accountability that will result from the new arrangement: “It’s now not obvious whose fault it is, when for instance, the cost of rent that New Zealanders pay goes up or the number of houses built goes down. Because you’ve got three different ministers with overlapping responsibilities who can all say the other one’s responsible” – see Jo Moir’s Judith Collins says demotion shows KiwiBuild a failure, offers olive branch.

In the above article, Moir also raises important and unanswered questions about this: “So how will the separate portfolios and responsibilities work? Any detail or explanation was less than forthcoming with both Mr Twyford and Dr Woods refusing media interviews, instead sending out short written statements. And with a three-week recess now underway little light will shine on the unanswered questions anytime soon.”

A number of journalists have also questioned the PM and Government’s cynical move of announcing the reshuffle at the last possible moment and then avoiding answering questions about it.

Here’s what Jane Patterson says: “Once again though, the government appears cynical in its timing. Ms Ardern waited until the last hours of the last day before the longest recess during the sitting programme. She fronted a news conference and the two newly promoted ministers talked to reporters shortly after. But the timing presented others the opportunity to avoid the media as the House rose and MPs were free to depart Parliament within hours of the announcement. Ms Woods and Mr Twyford have both declined requests for interviews – issuing statements instead and making the most of the opportunity to avoid any tricky questions.”

Finally, although the Prime Minister’s main Cabinet reshuffle message is that her government is still very serious about dealing with the housing crisis, should the public have any confidence that a reshuffling of the deck is going to bring about real change? I’ve tried to answer this question in a column today for RNZ – see: Is the government now more serious about the housing crisis? I suggest that this although this government hasn’t cared much about fixing the housing crisis, maybe this might be about to change with the appointment of the first genuine leftwing housing minister in ages.

It seems unlikely that Twyford will get the sack. Although Prime Minister Jacinda Ardern has been unwilling to express her complete confidence in Twyford’s KiwiBuild work, she has also recently claimed that he’s done an “incredible job”. She has also backed him by saying “I’m loath to see one individual carry any blame for what has been a policy that’s been difficult”.

Newstalk ZB’s Heather du Plessis-Allan also argues today that it’s unfair to blame Twyford for a policy that he inherited from Annette King and David Shearer, and which has been strongly pushed by all Labour MPs including Ardern – see: Why all of Labour must take blame for ridiculous KiwiBuild.

Here’s du Plessis-Allan’s main point: “This was a major Labour party policy at two elections. It was a huge promise that they keep on repeating. He was the guy asked to do the best he could with that. He was effectively given a helicopter and told to fly to the moon. How could he make that work? It was always impossible. So he doesn’t deserve demotion actually.”

But there are many commentators – from across the political spectrum – who believe Twyford should go. Writing for the Herald yesterday, David Cormack says: “So the big thing that should happen and which seems to have been signalled is Twyford should lose at least one portfolio. Probably housing. Because truth be told KiwiBuild has been a cluster fuss. And Phil has not been great at fixing the housing crisis” – see: Why Twyford will probably lose housing portfolio (paywalled).

In terms of his replacement, Cormack says: “The Minister best placed to probably pick up the housing portfolio would be a big ol’ nerdy swot. Someone like David Parker.”

For Matthew Hooton, the most obvious candidate to be the new Minister responsible for KiwiBuild is Kris Faafoi, but he says the Government seem to want to keep Twyford in place: “the current Beehive line is that perhaps Twyford should remain Minister of Housing now that he has learned about the industry and from his complete failure so far” – see: Why Housing Minister Phil Twyford must go (paywalled).

Hooton believes this would be a mistake: “there is precious little evidence that Twyford, now 56, is a person who can listen and learn. KiwiBuild, after all, is not a new policy. It was announced by Labour back in 2012 with Twyford responsible for building and construction all the way through.”

Furthermore, there’s a question of accountability: “surely the Prime Minister must hold him accountable for the tens of millions he has wasted on his initial folly”. And Hooton says Ardern owes to Aucklanders, to “not leave them under the control of someone whose credibility among everyone from first-home hunters to the country’s most senior business leaders is so low.”

Twyford is actually failing to be accountable for the KiwiBuild fiasco according to Duncan Garner, who points out that the minister simply is no longer doing media interviews on the housing programme: “Twyford is so embattled he’s now living in his own panic room. We have asked, in the public interest, to interview Twyford 11 times in recent months – he’s turned us down every time. Phil, if you can’t be accountable to the people, stop taking up space in Cabinet” – see: Twyford’s no-show at KiwiBuild conference a ‘middle finger’ to the industry.

In fact, Garner points out that Twyford has failed to be accountable to the construction industry that is working on KiwiBuild, saying that the minister pulled out of a Kiwibuild summit this week, thereby insulting those who were expecting to hear him speak. Apparently, Twyford “astonishingly, pulled the middle finger to the entire industry and pulled out at the last minute. The industry wants to know, deserves to know, what, how and when his shambles of a policy will be euthanized or scaled back.”

See also, Garner’s earlier column: Flagship KiwiBuild policy in tatters as PM refuses to speak its name. In this, Garner asks what exactly Twyford was doing for nine years in opposition? And he says: “Truth is Twyford has let himself down and continues to let the country down every day by not being totally upfront and realistic.”

The pros and cons of getting rid of Twyford are discussed by Claire Trevett in her article last week: Housing Minister Phil Twyford’s Waterloo: Will KiwiBuild cost him? (paywalled). She points out the irony in the fact that, when he was in opposition, Twyford used to go hard against the then Housing minister, Nick Smith, for his lack of progress, and he’d frequently call for his resignation. But “the tables have turned somewhat” and now Twyford is on the receiving end of the same sort of scrutiny over the housing crisis.

Here’s Trevett’s main points about whether to sack or retain Twyford: “Handing the portfolio to another minister would buy some breathing space and break that association. However, there are problems with moving the portfolio to another minister. The first is the shortage of ministers able to take on the Mr or Ms Fixit role required, and turn things round before 2020. The other problem is whether anybody would want the job. Many would prefer Twyford to carry the can if things turn totally to custard. Ardern will also be assessing how much of the KiwiBuild mess is Twyford’s own fault and whether Kiwibuild is as bad as it seems”.

At the KiwiBuild summit this week there was obviously plenty of discussion about the ongoing viability of the housing programme. According to an RNZ report from the summit, “A poll of people at the KiwiBuild summit found a majority had little to no confidence in KiwiBuild ever achieving its original aims. And the frustration from industry is clear. They want the Government to move in other areas too – in regulatory reform, freeing up land and building. Infrastructure” – see: Construction industry urges Government to get on with KiwiBuild changes.

This article also reports that other Government figures attended the Kiwibuild summit but were reluctant to be accountable for KiwiBuild or even discuss the details of the programme. Standing in for the absent Twyford, Jenny Salesa, the Building and Construction Minister, apparently “didn’t even mention KiwiBuild once in her speech” and told journalists: “In terms of housing and KiwiBuild is part of housing, I’m not the responsible minister”. Similarly, “the head of the KiwiBuild Delivery Agency, Helen O’Sullivan, also refused to answer media questions on progress.”

Some of the reluctance by the Government to talk about KiwiBuild might relate to the fact that the long-promised “reset” or “recalibration” might be about to take place. It was supposed to happen about six months ago, but is continually being delayed. The most recent statement on the timing from Twyford is that: “It’s taking a little bit longer but it won’t be much longer. I’d be I would think, a few weeks at most.”

It now seems that KiwiBuild might even be entirely killed off. Henry Cooke reports that Jacinda Ardern has signalled the housing programme could be axed before the next election, which would leave all of Labour’s main election promises broken – see: KiwiBuild policy not guaranteed in 2020.

The debate has turned to the question of explaining how KiwiBuild turned into the disaster that it now is. For the most detailed account of “the route to the mess that is KiwiBuild”, see Henry Cooke’s How KiwiBuild fell down, and whether anything can be saved from the wreckage.

Cooke explains how the flagship housing programme was a great example of policy made on the hoof – or in this case, made up by Annette King during a short car ride with the head of the Salvation Army. It seems the policy was also more designed for ideological and electorate purposes than to actually be implemented. And Cooke details how the scheme took on a piecemeal approach, with all of the original promises of the scheme slowly but surely dropping away.

Another version of what went wrong can be found in former Property Institute of New Zealand CEO, Ashley Church’s article, Why did KiwiBuild go so badly wrong? This boils down to the idea “that ‘Government planning’ is an oxymoron and that the best thing the Minister could do, to achieve his targets, is to get out of the way and leave the private sector to it”.

Alternatively, David Cormack has an explanation that says the Labour politicians were just too naïve and too ready to see the housing problem as a National Party one: “It seems that Labour genuinely believed that National wanted a housing crisis and it was merely a lack of willpower and smugness that stopped them from fixing it. So along came Phil, and with all the willpower and smugness in the world he was unable to fix it. Maybe there are more systemic issues at play, like RMA reform, the cost of new-build components and other boring bureaucratic issues that require attention.”

In Hooton’s column, above, he also criticises Labour for taking such a limited and piecemeal approach to solving the housing crisis: “it would have to be done at scale, utilising the Crown’s procurement power, rather than as a collection of much smaller projects”. He says that should have been done on a mass scale, and would have been more successful if it had instead involved building 100,000 state houses (which could still be privatised in a “rent to buy” scheme).

Duncan Garner also has another opinion piece in which he is scathing about Twyford’s failure to properly develop the KiwiBuild concept, explaining that the problems have come about because it was never a serious proposal: “Kiwibuild was more marketing than anything made of solid concrete; it was only ever just a slogan, but slogans do not turn into affordable houses. You can’t sleep in a slogan, or stay warm in a catchphrase, or house your family in a branding exercise. I am sorry to say this New Zealand, but we were taken for fools and we were misled; joke, flop, pathetic, disappointing, lost opportunity. Nine years of neglect? That is Labour had nine years in opposition planning Kiwibuild, but not doing a day’s work on it” – see: Has there been a bigger flop that Phil Twyford’s Kiwibuild?

Finally, it’s worth noting that despite all the troubles with KiwiBuild, a large majority of New Zealanders (60 per cent) still believe that the Government should be proceeding to build the promised 100,000 affordable houses – see 1News’ Latest KiwiBuild development revealed for Auckland, as poll shows Kiwis still back the concept.

That’s exactly what has happened with KiwiBuild. Labour politicians largely won office in 2017 on the basis of their scathing critique of how badly the National Government had managed issues of inequality and, in particular, the housing affordability crisis. Labour convinced voters they would take action on these problems, and their flagship housing construction policy would swiftly produce 100,000 “affordable” new homes.

It is now evident that Labour will not deliver on this, breaking their election promise. Therefore, commentators and opponents are increasingly talking about the possibility of Housing Minister Phil Twyford being sacked for his poor performance.

The heat was turned up last week, after Twyford gave an interview in which he suggested he was considering abandoning the KiwiBuild promise of delivering 100,000 houses – see Jenée Tibshraeny’s Twyford coy on 100,000-house KiwiBuild target.

This all comes in the context of Twyford and the Government saying that the KiwiBuild programme is now being “recalibrated”, by which they appear to mean that the whole programme is being re-evaluated and a re-launch is expected, in which some of the detail of the scheme might differ from what has been promised.

In the interview with Tibshraeny, Twyford says the recalibrated version will be announced in mid-June (a date that has been continually pushed back). In terms of the 100,000-house promise, he said this was something he’d been “looking at” but wouldn’t comment on, except to say: “It’s like American nuclear ships in the 1980s. It’s a neither confirm nor deny situation”. And since then, neither Twyford nor the Prime Minister have been able to confirm in Parliament that the promise still stands.

Reporting on this, Tova O’Brien pointed out that this wasn’t the first time Twyford has had to admit defeat on the targets: “In its first year, 1000 homes were supposed to be built. That promise was broken in January, and revised down to about 300. A KiwiBuild reset was announced then, but still the mother of all targets remained” – see: KiwiBuild: Is the Government’s flagship policy over?

O’Brien also pointed out that “Earlier this year, Phil Twyford said he’d stake his job on achieving the goals”, but “asked on Wednesday if he would resign, Twyford refused to answer and stormed off, as a proverbial storm brews for the Government.”

It’s still not entirely clear whether the 100,000 target stands or not. Deputy Prime Minister Winston Peters is adamant that not only does it stand, but it will actually be surpassed. Jenna Lynch reports: “Peters is doubling down, saying the Government will build ‘a lot more’ than 100,000. He doesn’t believe the nay-sayers, telling the House that the KiwiBuild target is ‘easily achievable’. He even borrowed a line from US President Donald Trump: ‘The intention is to make this country great again’.” – see: KiwiBuild: Winston Peters says Govt will build ‘a lot more’ than 100,000 homes.

Duncan Garner has reacted to this, saying “Does Winston Peters think we are thick, or does he think we just aren’t watching and listening? We are Winston and it’s time to call you out, stop misleading the public on stuff that matters – housing” – see: KiwiBuild was Labour’s biggest promise, now it’s their biggest failure.

Garner says “it’s a total flop, 84 homes in 541 days, what a spluttering mess.” Looking at how disastrous the programme has been, he concludes that “KiwiBuild should be scrapped and you work on the things in housing that matter and work.”

For Mike Hosking, this was all inevitable and is typical of politicians: “You can’t build 100,000 houses in 10 years. You can’t, and shouldn’t, promise you can, because it isn’t real, it isn’t possible – and any promise to the contrary is dishonest, naive and bound to end in tears” – see: KiwiBuild collapse confirms this is a Government run by amateurs.

According to Hosking, Twyford should have resigned: “If this was a business deal, there would be legal action, the operators would be accused of fraud.”

Henry Cooke is also scathing, writing in the Sunday Star Times this week that KiwiBuild failure is more than a broken promise, it’s a betrayal. He says “this is not just one promise broken – it’s a betrayal of the very foundation Labour built its election campaign on.”

Cooke says that “some level of punishment” is now likely, and “Labour can expect a whole lot more hostility, of distrust in their promises. Its best issue has gone from go-to to embarrassment. It’s hard to come back from that.”

The 100,000 promise should be taken seriously says Cooke: “Now, specificity is its biggest problem. People remember a big number. Suddenly Housing Minister Phil Twyford is telling people he can’t guarantee that number any more, as the entire policy is ‘under review’. The review follows a string of smaller failures. The interim goal of 1000 in the first year was scrapped when it became clear KiwiBuild would have difficulty hitting even 100 homes.”

Cooke reports that there are still serious attempts within the bureaucracy to make KiwiBuild work: “The KiwiBuild unit within the Ministry of Housing and Urban Development is hard at work signing up developers – the disappearance of the interim target and installation of new leader Helen O’Sullivan has allowed the team to re-assess what went wrong with some of the earlier developments.”

Yet there is an intrinsic problem with the KiwiBuild design, Cooke says: “The underlying issue for KiwiBuild is that it is a policy from the middle of last century transplanted into the 2010s. When Labour dreamt up KiwiBuild the party was in the middle of a profound identity crisis, and looked to its history for inspiration – a history that involved the first Labour Government building tens of thousands of state homes. But that Government did it with state-employed builders, a politically-controlled interest rate, and a very cushy deal for a guy named James Fletcher. That is simply not the way Governments are run these days.”

Similarly, Hamish Rutherford wrote in February that KiwiBuild is the solution you come up with when you don’t want to fix the problem. He argues that the Government is looking for a simple solution to the housing crisis but is inadvertently making things worse: “Rather than focus first and foremost on removing the barriers which make housing so expensive, the Government’s solution is to add fuel to the fire.”

This comment came in the wake of the Reserve Bank explaining that the KiwiBuild programme was actually going to “crowd out” other developers from constructing houses. Reserve Bank governor Adrian Orr had explained that “If they [KiwiBuild] were going to build 100 houses, that means that between 50 and 75 houses elsewhere aren’t built.”

Commenting on this, Newsroom’s Thomas Coughlan said: “It added further evidence to fears the programme was broken beyond repair. A little over halfway through its first year, there appear to be two major issues with the programme. First, ironically, is a lack of demand. The houses are too expensive for most people. Second is a concern about houses being built in the wrong parts of the country” – see: Is KiwiBuild broken beyond repair?

The Otago Daily Times also seems to think that the building programme needs more than a recalibration. In a recent editorial it says that recent developments in KiwiBuild suggest it “has already lost the hearts and minds of those it was earmarked to help”, and it “appears to be in tatters” – see: Is it time of a KiwiBuild switch?

The newspaper believes that something can be salvaged from the wreckage, and the best possibility is that the Government turns it into a way of getting prefabricated construction going on a large scale instead: “Perhaps, then, it is time KiwiBuild’s champions accept defeat, drop the last of their targets and instead embrace pragmatism – by focusing the Government’s heft, with guarantees of funding and demand, solely on ensuring a powerful factory-built housing industry grows in New Zealand. It is not too late for a KiwiBuild shift away from its initial promises towards a market-led, Government-backed solution. Forget the targets, build the factories.”

So will the Minister be sacked? There are increasing calls for him to go, as well as forecasts that he will lose his job in the upcoming Cabinet reshuffle after the Budget. Certainly, there have been plenty of harsh criticisms of his performance. For example, in her assessment of all Cabinet Ministers, Audrey Young awarded Phil Twyford the lowest evaluation of four out of ten, saying this: “Made the classic Opposition mistake of over-simplifying the housing supply problem, then over-promising and under-delivering the solution, KiwiBuild” – see: Who rates highly in our Cabinet report card – and who disappoints? (paywalled).

Others are also suggesting he’s got problems. RNZ’s political editor Jane Patterson outlines some of the challenges in her report, Housing Minister Phil Twyford refuses calls for resignation over KiwiBuild.

She also quotes economist Shamubeel Eaqub saying the programme needed major change if it was to survive: “I’m not optimistic that we will see a big reset but I think we need a fundamental repositioning of KiwiBuild if it is to succeed. In its current form it is doomed to fail”.

Jane Patterson also deals well with the latest bureaucratic problems in the scheme, especially controversy over how officials are determining which property developers to provide financial backing to in underwriting their house construction – see: Phil Twyford’s credibility questioned over changing answers on KiwiBuild.

Here’s the key point about this “additionality test”: “Twyford is under fire for a series of statements he and his ministry have made about the oversight of the Crown underwrite – hundreds of millions of taxpayer dollars committed to shift the risk from property developers to the Crown by promising a guaranteed price.”

The underwriting of private developers’ KiwiBuild constructions has become an issue, given that Twyford has redirected the scheme to incorporate houses that were already planned or being constructed in the private market. And last month it was revealed that most of the new “KiwiBuild homes” had not started out as such – see Jason Walls’ Half of all KiwiBuild homes already under construction before being brought into the programme. In this article, National’s housing spokeperson, Judith Collins, comments that this change means that “KiwiBuild is just a welfare scheme for property developers”.

On this point, Gareth Kiernan, chief forecaster at Infometrics, has also been cutting: “If the aim is to increase the supply of housing because we’re not building fast enough and that’s contributing to the affordability programme, then Phil Twyford’s modus operandi to date of walking down the street, finding a house that’s already being built, and slapping a KiwiBuild sticker on is patently stupid and nothing more than window dressing” – see Susan Edmunds’ Huapai KiwiBuild homes had already been tried for sale on open market.

Kiernan has more to say: “However, if the aim of the programme is to effectively provide a taxpayer subsidy to help a select and lucky few people into their first home, then selling at a discounted rate to first-home buyers fits the objective. Because, as I’ve previously argued, the Government doesn’t really know what it wants to achieve with the policy beyond virtue signalling, KiwiBuild is fast slipping towards the lesser latter aim than the more admirable and fundamentally more important goal of genuinely trying to fix the housing affordability crisis.”

For more arguments about the major changes needed to make KiwiBuild work, see Susan Edmunds’ KiwiBuild ‘almost no chance of success’ in current form.

Finally, for more comment on the KiwiBuild scheme, see my updated blog post, Cartoons about Labour’s KiwiBuild and the housing crisis.

by Dr Bryce Edwards

Is the National Party’s latest online advert deliberately designed to provoke a backlash from liberal opponents? And is National trying to feed the fire of a growing culture war in New Zealand? It’s seems so, and the party’s desired result is being achieved.

The taxpayer-funded 30-second video was launched on social media on Wednesday. You can see the ad about KiwiBuild here on Twitter: They’re all sizzle, no sausage. So far, it’s had 48,800 views on this single tweet.

The piece of advertising propaganda was immediately attacked by opponents as being sexist, particularly because it incorporated some backward gender stereotypes, with a young woman being lectured to about the failures of KiwiBuild by a young man being condescending. Some labelled it “man-splaining”.

Most prominently, Prime Minister Jacinda Ardern correctly pointed out that the ads looked like they came from the 1970s, referring to their backward nature. But she was careful not to take too much of the bait, saying “I think if people see the ad they can make their own judgement on it”.

Others have been readier to express condemnation and even outrage. For example, the Minister of Women’s Affairs, Julie-Anne Genter attacked it as a portrayal of a gullible woman being mansplained to by two patronising males.

Plenty of other commentators have condemned the ad – today the Herald’s Damien Venuto wrote about how the woman in the ad was “the literal embodiment of every dated blonde joke ever told” – see: The mistake National keeps making in its terrible ads. He warns the party that they are stepping “into a giant advertising turd by belittling a large portion of the voting public: namely women.”

Venuto predicts that the ads will backfire, giving Labour an electoral advantage: “These ads reinforce the notion that National is the old, rich party, looking to maintain the power dynamics that have long existed in New Zealand society. If anything, it gives Labour further impetus to reinvigorate the smart unifying message delivered in its previous election campaign.”

There has been widespread criticism. Linda Clark tweeted sarcastically, “Policy is complicated. I needed a man to help me understand it”. Another posted: “I am actually in furious tears over how sexist that National ad is. Blatantly, explicitly, intentionally sexist. How are we meant to move away from a culture of violence towards women when our political rhetoric expressly permits this?” – see: National Party’s KiwiBuild attack ad comes under fire as sexist and incorrect.

But was all this negative reaction actually exactly what the National Party was seeking? Commentator Danyl Mclauchlan admits that it might be a “grand conspiracy theory”, but that this is “exactly what they wanted to happen”. He wrote an article yesterday arguing “Progressives are actually the primary target for this ad and it is designed to offend them. Offense and controversy makes things newsworthy and earns you coverage in the mainstream media, thus potentially reaching a far greater number of viewers” – see: Notes towards a grand unified theory of the terrible National Party sausage ad.

Quite clearly the strategy has worked, with National’s ad gaining huge amounts of media coverage. In this regard, Mclauchlan argues that it’s a clever attack advertising strategy, which has some parallels with the operating style of the US President: “This is Trump’s great innovation in political marketing: you don’t need to pay for advertising you just repeatedly outrage progressives, especially those who work in the media, and they’ll give you all the free coverage you could hope for.”

Mclauchlan concludes: “Presumably there will be more: maybe the next shocking thing will be the next National Party ad, giving online progressives the chance to spend the whole year furiously amplifying National’s talking points.”

Could National’s strategy actually therefore be primarily designed – not just to get more attention, as Mclaughlan argues – but also to push the party’s liberal opponents into furthering their reputation as being obsessed by being “politically correct” or “woke”?

This is what I argued this morning on Newstalk ZB, saying “Most supporters of National will just see this ad and think ‘oh National is criticising KiwiBuild’, whereas National’s opponents read much more into it, they’ve seen it and been provoked by it and fallen into the trap” – see: People outraged over ‘sexist’ National attack ad have ‘fallen into trap’.

Essentially National’s strategy is a highly cynical attempt at a type of “reverse dog whistle politics” – because their own base and the voters they are trying to win over don’t pick up on any underlying offensiveness of the advertisement, but opponents do and they react accordingly. As I explain on Newstalk ZB, “Many others fell into the trap, gave it publicity and called it out and for a lot of New Zealanders they would have seen the ad and thought it just seems like a silly ad and thought the complaints about it… were a bit over the top.”

Therefore, a “cringe-worthy and clumsy” ad manages to feed into, and thrive off, the growing culture wars in New Zealand. Because the context in which National has launched this ad is one of 1) heightened sensitivity towards social justice, sexism, and gender politics, and 2) a reaction against such “woke” politics, with a lot of frustration and abhorrence at social justice progressives and their outrage.

Hence, National Party deputy leader, Paula Bennett has been able to come out and defend the ads, strongly positioning her party as in opposition to “outrage culture”. She has been reported as saying that “it’s easy to find offence if you’re looking for it”, and people need to “lighten up”.

On RNZ, Bennett “was asked if she thought young, blonde women need government policy explained to them by men” and she responded: “Oh, no more than fat brown ones or any other male that I might know or anyone else. It’s got nothing to do with gender it’s got nothing to do with hair colour it’s got nothing to do with any of that sort of thing” – see: Paula Bennett defends ‘no sausage’ mansplaining ad on KiwiBuild.

This article also points out that National’s male MPs were being put under pressure in Parliament and by the media, essentially being quizzed as to whether they are sexist and whether they “mansplained”. National was probably quite happy about this narrative of their MPs being under attack.

And if they were any doubt that this “woke-provoking” strategy was being used, then it’s worth noting that National’s pollster David Farrar blogged to say: “National will be delighted that woke activists on Twitter are so stupid they managed to get all this free publicity for the advertisement” – see: Woke activists fall into trap.

Newstalk ZB’s political editor Barry Soper has also viewed National’s ad as being designed to provoke a strong reaction from opponents: “Today it’s the talk of the town, mainly because these days everyone’s so politically sensitive, careful about what they say for fear of causing offence and National knows it. Which is why the ad’s had the impact it has” – see: National’s Kiwibuild ad the talk of the town. On National’s strategy, Soper says “It’s brilliant and it’s had the desired effect: getting everyone fired up and the public talking.”

Also at Newstalk ZB, Heather du Plessis-Allan has come out strongly against the ad, saying “it’s a clever ad. But it’s disappointing” – see: Make no mistake, National’s BBQ attack ad is sexist.

Not only does du Plessis-Allan draw attention to the backward gender stereotypes in the ad and the “mansplaining”, but also to the apparent use of sausages in the ad as a putdown of the Labour Party and Jacinda Ardern: “The sausage is a phallic symbol FYI. If that sounds too conspiratorial to you, you’re being naive. This is an effective political ad and effective political ads almost always contain some sort of subtle dog-whistle. And very little in such an ad is an accident. The sausage is deliberate.”

Nonetheless, the impact seems to be working – with a backlash building against the advert complainants. The Herald reports the following readers’ comments with examples of people cheering on the ads: “PC gone mad”, “Bloody brilliant” and “People need to get over themselves” – see: ‘People need to get over themselves’: Swell of support for National’s ‘sexist’ BBQ ad.

Finally, National’s attack conjures up memories of other attack ads run by the party in the past, and the classic to watch is their 1975 Dancing Cossacks video.