The government has let the housing market deteriorate with measures which are insufficient, late and ineffective. As a first step we need to identify the underlying problems. 

The Prime Minister’s announcement that there is nothing new about homelessness is both an example of his strengths in reassuring the public that there is never really a problem and the weaknesses of the government’s policy approach..

The fact is the government has no ‘housing policy’, that is a comprehensive approach to the sector. It has fragments of initiatives which do not always makes sense, but it has had little anticipation of the accumulating problem nor analysis of the sector’s development. Most fundamentally, its responses are largely reactive.

Most activities and sectors of the economy do not have specific ministers and policies. If there was a shortage of, say, onions, the prime ministerial assurances that ships were on the way and there are alternatives would largely satisfy the public who would not expect another outbreak a few weeks later. But the government does not know its onions from its housing.

There are two key reasons for housing being different. First, the stock of housing does not change much. You cannot ship in a couple of containers of houses when there is a shortage – although there have been suggestions that the homeless could be dumped in containers.

But second, and more subtly, housing is not just about income – like having enough to be able to purchase your onions. It is also about wealth – having enough to be able to put down a deposit. True, less income inequality would make it easier for those at the lower end of middle incomes to purchase a house (if one was available) but there would still be a wealth barrier for many. The usual assumption in market economics is that income and wealth are fungible – that you can get from one to the other easily – but that is not true. Even had we had a less unequal income distribution the inequality in the wealth distribution would still create difficulties in the housing market (but not in the onion market to emphasise the point).

The wealth problem has been complicated by what seems to be an increasing globalisation of housing markets. The pressures in the Auckland housing market appear also elsewhere in the Pacific Rim in Vancouver, Sydney and Melbourne – and London and New York among other places. (Observe, as we would expect, that the prices are rippling to areas outside the primary urban centres, such as Hamilton and Tauranga.) This may partly be because the rich can have residences in more than one place, given their relative ease of travel and from high migration.

But the pressures are also caused by capital flight from jurisdictions where crony capitalism is rife and where governance is arbitrary – China, the Middle East and Russia, are frequently mentioned but there are many others. So they keep their wealth in safer jurisdictions. (Incidentally, while most of the discussion on the Panama Papers is about tax avoidance, their disguising capital flight is also important.) At least some of this ‘grey’ money goes into the top end of the housing market, because it is harder for a foreign power to seize it than a bank deposit.

The globalisation seems to be pushing housing prices up. Existing home owners may feel richer. They are not really (unless they downsize) because the cost of the replacement house is higher too. Those to whom they leave their wealth may eventually be, but in the interim they may find home ownership unaffordable.

I have not yet mentioned housing as a fundamental economic right. That is true but not all house purchases are for this purpose. Obviously someone living in a car or container needs a house of, say, 80 square metres, but it is less obvious a similar need is being met by a house which is two and three times this size. Instead, the owner is purchasing status and a capital investment (the profits from which are not taxed). An economist may be relaxed about conspicuous consumption although wary of a borrowing splurge to increase capital gains leverage, but my point here is that if we are building bigger houses than we need or more houses than we need, there are less building resources for smaller occupied houses. (Such a building program probably requires government funding.).

The building program for new houses has also suffered from diversion of capacity for the Canterbury earthquakes rebuild and the need to remedy leaky homes. (This arose partly from the introduction of new technologies without the skills to implement them, but also because of a fetish for light-handed regulation which we have not entirely discarded.) Additionally, a lot of buildings have had to be rebuilt or modified because they did not meet earthquake standards. (Again one may ask, how did some buildings put up in the last three decades not meet reasonable earthquake standards? The fetish again?) That has meant that the supply of housing has not kept up with population growth, especially in centres whet there has been a heavy inflow of migrants from offshore and elsewhere in New Zealand. Probably supply cannot keep up unless the government takes the sort of building as it has done in the past. It hasn’t.

Additionally, Housing New Zealand appears to have had an inadequate maintenance program many of its houses are coming to the end of their life or need a major refit, while there is private housing which needs insulation.

Then there is the adequate land problem. It differs by location. Christchurch can build to the Alps if it has too. Auckland is trapped on a narrow isthmus; extensions north and south add to an overburdened motorway system. It has to infill and go up (even if apartments are not a traditional way of New Zealand life); my guess that building a decent public transport network for Auckland is critical and should be ahead of housing development – not, as it is today, behind.

Such an exhausting list illustrates the lack of serious attention the government have given to housing even though it is high among the public’s priorities. Yet, so he says, the Prime Minister has been aware of the difficulties. The record is, as in so many other areas, it may have been aware of the problem but the government has done hardly anything about them.

Now the public alarm has become overwhelming. As the shoe pinches, yet again we may soon see a half-baked response to try to deal with problems which have been accumulating for some time. That’s an idea! What about housing the homeless in a shoe?

Comments (1)

by Murray Grimwood on May 25, 2016
Murray Grimwood

Christchurch can't actually 'build to the Alps if it want's to.

There isn't the fossil-fuelled, fossil-fuel-feedstocked, time left to do so.

Not only that, but it would have to displace all that dairying, drink the irrigation water, be fed from somewhere (else?)

For anyone who isn't aware where we are on the LTG timescale,

and Dennis Meadows' only comment these days is that we've brought 2030 forward to 2020........

Nope, on that basis, global finance fails. Trading globally collapses. So too does the energy we have available (most is oil, hydro just does electricity, not trucks or tractors - or bitumen). Then we will have to feed ourselves, and make do with the existing housing stock. Much of which is untenable (too big, requires artificial heating). I see a time (10-15 years away, perhaps closer) when multiple families will inhabit the too-big houses. I see a mass migration to the 'country' where the food is produced, and food will be everything. Just who governs in that scenario, and who decides which pieces of civic infrastructure to hold, which to let go - in an interesting question.

The problem comes, at present, when those who are displaced would happily live in alternative accomodation styles, but those who feel themselves 'rich' through ownership within the system, want it to continue. So the latter vote to exclude the former, and until things get dire, will outnumber them.

Nobody - regardless of political hue or religious conviction - can cope with exponential population growth. There are no permanent answers to that. Only stop-gap measures until physical limits intervene. Only a crowd ballsy enough to address population (and resources) in a long-term-sustainable context, can qualify as valid future leadership.

I doubt we'll see such a political force emerge untill aprez-crash.

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