Housing The People: Will the next Labour Government be as economically inventive as the first?

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WHICH IS MORE DEPRESSING? Listening to the Prime Minister deny the existence of a housing crisis, or trying to make sense of Phil Twyford’s solution to it? The Organisation for Economic Co-operation and Development’s (OECD) has just ranked New Zealand 34 out of 34 when it comes to the over-valuation of residential property relative to rent and income. According to the OECD, New Zealand house prices, relative to rents, are 70 percent too high.

The Prime Minister will have none of this. Rather than reflecting some sort of crisis, soaring house prices are merely a symptom of the New Zealand housing market’s rude good health. Besides, says John Key, one has only to go on to ‘Trade Me’ to discover plenty of houses priced affordably at around the $300,000 mark.

Twyford’s response to this nonsense began well enough on Radio New Zealand’s Morning Report. New Zealand’s very real housing crisis, he said, was the result of market failure: something which only the State possesses sufficient resources to correct. Labour’s KiwiBuild programme, he said, was pledged to building 100,000 affordable homes in ten years.

If only KiwiBuild meant the New Zealand State buying the land, constructing the houses and then leasing them out at affordable, income-related rentals to young New Zealand families. That, after all, was what the First Labour Government had done. Between 1935 and 1949 entire suburbs had been built by the State. Sturdy, well-designed “state houses”, constructed out of local materials, were erected in the tens-of-thousands.

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Orakei, Mt Roskill, Mt Wellington, Panmure, Naenae – made Labour’s commitment to “Housing the People” as real as the concrete foundations these suburbs’ state houses stood on. In its propaganda for the 1938 General Election Labour quoted the words of Professor A. H. Ryan, of Queen’s University, Belfast, who told an Auckland audience: “I had the good fortune to visit the Orakei housing scheme. I have an extensive knowledge of housing schemes and have visited them all over Europe, and I want to congratulate New Zealand in having the finest housing scheme in the world.”

Sadly, KiwiBuild offers nothing like the First Labour Government’s housing policy. Essentially, it is a Public Private Partnership, in which the State facilitates the private sector’s construction of houses which it will then sell at “affordable” prices ($300,000 to 400,000 in Auckland) to first home buyers.

In other words, Labour is promising to help the sons and daughters of middle-class New Zealand into their first home. Twyford may talk in emotive terms about coming to the aid of people living in garages in South Auckland, but the houses that he, Labour and an army of grateful property developers are proposing to erect are not intended for them. Where are working families on the minimum wage going to find the deposit on a $350,000 house?

The question that rattles around in my head is “Why?” With the noble precedent of Labour’s first great exercise in “Housing the People” still standing on a thousand streets all over the country, what is preventing Twyford from following it? Does it all come down, like so many things the Labour Party would like to do – but doesn’t – to a lack of money?

The cost of its housing policy certainly taxed the ingenuity of the First Labour Government. The answer they eventually came up with shocked New Zealand’s Civil Service mandarins to the core.

W.B. (Bill) Sutch, writing in his book The Quest for Security in New Zealand 1840 to 1966, describes the extent of Labour’s political inventiveness:

“To build the houses, credit was created by the Reserve Bank at a rate of 1.25 percent for the first £5 million. John A Lee was made Under-Secretary in Charge of Housing. He accepted on the understanding that money would be available from the Reserve Bank. This procedure was a political victory for those in the Labour Party who wanted to use the financial system to build New Zealand even though such an action might conflict with the banking authorities in New Zealand and in Britain and necessitate a change in ‘free trade’ conceptions. Said Lee later, ‘This was a contentious Party issue. With tens of thousands of men on relief work the Labour Party, Nash and Fraser apart, believed that the funds of the Reserve Bank should be used for essential capital works until available men, machinery and materials were being fully employed. We wanted to undo the politically enforced bankers’ deflation.’”

Can it really be true that the Labour Caucus of 2014 contains no one with the wit and courage of Jack Lee and his colleagues? Is there really no chance that the sort of unorthodox economic thinking that made possible the first great exercise in “Housing the People” can be replicated on Twyford’s watch?

Is there no one in Labour’s ranks who was present, and understood, what the late Sir Owen Woodhouse was telling them two years ago, on 3 November 2012, at the fortieth anniversary of the election of the Third Labour Government?

Sir Owen was the architect of New Zealand’s world-beating Accident Compensation Scheme. Originally, the scheme had been a pay-as-you-go operation – it’s annual costs being met out of the levies charged, augmented if necessary from the Consolidated Fund. In the late 1990s, however, in preparation for its eventual privatization, the National Party insisted that the Accident Compensation Corporation become fully-funded. In other words it was required to build up a fund sufficiently large to meet all of its existing and likely future obligations.

According to Sir Owen:

“… ACC has been regarded by some as an insurance scheme under another name. And eventually the need for an income flow was converted from pay-as-you-go to a commercial insurance-type funded system. It is an expensive mistake. For this reason, every year employers and owners of vehicles have been paying much larger amounts than need be in order to build up the large invested funds which now total more than 20 billions. The funded approach should cease in favour of ACC’s annual needs – the system that has always operated for health, education and all general social benefits. By this simple change levies and vehicle charges would be much reduced; they could be averaged across all industries; individual ACC accounts could be amalgamated. And only by this means can the system be extended to sickness as intended by the original report and later outlined as feasible by the Law Commission. It may be asked what of the large fund now in place?”

What indeed?

Sir Owen’s suggestion was that a “sufficient portion should be retained as the necessary contingency against the risk of major disaster with a balance to future levies”.

Well, yes, that would be one solution. But, were a future Labour Government to follow Sir Owen’s advice and revert to a pay-as-you-go ACC, then that $20 billion, or, at the very least, the annual income it generates, could be turned to other purposes.

Like “Housing the People”.

27 COMMENTS

  1. Am I right in thinking Lee was the brains behind this? Who is the ‘Lee’ in the present Labour Party (the thinker, not the later rebel.)

  2. For some strange reason we can allow governments to create money as debt to fund the financial markets (quantitative easing) but we cannot allow governments to create money to fund infrastructure or community needs.

    Clearly if inflation is very low, and economic activity is sluggish, there is not enough money to go around. There is not enough money to meet the needs of business; people need and want to purchase products, and business wants to sell it. But there’s not enough money for the exchange to take place.

    We have seen that sometimes the creation of money is not inflationary. The US and Europe has been creating new money via quantitative easing for several years now. No massive inflation. Still low inflation, high unemployment and sluggish economies.

    But somehow the right wing insist that if we create money to build state housing and home people, it will lead to massive inflation.

    It didn’t after WWII. It wouldn’t at this time either. It’s actually a really good way to get the economy moving again!

    • ” . . . we can allow governments to create money as debt to fund the financial markets (quantitative easing) but we cannot allow governments to create money to fund infrastructure or community needs.”

      Yes, Lara, exactly the point. Current economic policy both in NZ and around the world is not based on contemporary economic theory – irs based on “whats good for maintaining the staus quo” – in which the rich get richer, and . . . oops, oh dear, how sad, never mind . . . the poor get poorer.

      Its not an economic THEORY that drives our government’s policy; the policy is driven by an economic “POSITION” (or “agenda”, or “con-game” . . . .call it what you will.)

      See “New Economics Foundation”, http://www.neweconomics.org/

      • Chris has touched on a key issue re housing here, namely where the funding will come from. It is one thing to build more dwellings (in whatever form) to increase supply and hold price inflation in check.

        It is another altogether to help people borrow the money to do so. It is clear that the lightly-regulated banking system in NZ since the 1980s has ultimately only led to consolidation and overseas control, i.e. profits from the mortgages of NZers flowing straight out of the NZ economy. When billions a year from the pockets of NZers flow straight to Melbourne, other economic or trade debates seem quite trivial.

        A Labour-led Government with real vision would set up a RBNZ-backed agency to lend to NZers at stable, low rates of interest to keep the money in NZ and keep mortgage rates low for the long term (for its many faults, the US financial system delivers mortgages fixed at 3% for 20 years etc.)

        This would deliver real living standards benefits to working-class and middle-class NZers on top of the benefits of greater supply of dwellings. Who in progressive politics in NZ now has the vision and drive to make it happen?

      • The “New Economics Foundation” appear to have figured out a key point; money is created by private banks when they extend credit. Or rather, new money = debt.

        I really do think this is the key to understanding how our economy works, and once we understand that how we can change it to a better system.

        Its is impossible to have perpetual growth in a finite space, and growth at any % rate is exponential. I believe that the vast majority of economists and politicians have no understanding of exponential growth, otherwise they would not herald an economic growth rate at a % as a good thing!

        If we change how our money works we change how our economy works. An interest free demurrage system would be a radical change, for the better:

        http://issuu.com/margritkennedy/docs/bue_eng_interest

        I learned a lot from this economist. He has decades of senior experience in Europe:
        http://www.lietaer.com/

        This is a lecture on how exponential growth works from an old physics professor:
        http://www.albartlett.org/presentations/arithmetic_population_energy.html

      • “…oops, oh dear, how sad, never mind . . . the poor get poorer.”

        I do not see this state of affairs as collateral damage, but as wilful and deliberate.

        TINA: There is no alternative.

        Ruth Richardson: “…was very clear, very blunt, very honest about (the ECA’s) purpose. It was to achieve the dramatic lowering of wages, very quickly, by allowing the high levels of unemployment to pull the cost of labour down; that the market would determine and an oversupplied market would reduce the price.” (from Wikipedia)

        Paula Bennett: The dream is over.
        Joe Hockey: The age of entitlement is over.

        Note that these last statements are aimed at people with very modest dreams and very few entitlements.

        Why could you not have a “market economy” with modest but adequate housing and a basic income entrenched as human rights? Because people that are not permanently harassed, scared, and on the move might come up with alternative systems, which TINA has ruled out. What we are faced with is not an economic philosophy per se, but a rationalisation for conquest.

        I think that of our parliamentarians, Hone Harawira alone has grasped the nettle and calls it for what it is. The big question is how much outrage will it take to change things?

  3. Is it so hard to find a politician with innovative plans and ideas?

    Where have they all gone?

    Think ‘fix the housing problem’ and you will probably get the answer.

    And then just do it!

    Never mind the real estate agencies, and agents,and the banks, and the property investors – they get far too much income and they already have enough money in the bank – and it is just for themselves – skimming off other peoples hard earned homes.

    Just drop the house prices by the OECD 70% and tell everyone to shutup their winging. Sort out the banks and Insurance companies by reducing the mortgage amounts to equal the real house value. Win Win! They will get over it, as they will have no choice. Heaven forbid they may have to accept a drop in salary!

    If you are not one of those greedy capitalists then it should be an easy task, with nothing in the way of doing it – other than a lack of balls.

    Opinion and belief.

    • Is it so hard to find a politician with innovative plans and ideas? Where have they all gone?

      There are still such people around, but they would not be elected these days.

      Our society has lost the ability to “execute on the big stuff”. In our case that is obvious with the Christchurch rebuild.

      See. http://www.worldpolicy.org/journal/fall2011/innovation-starvation

      My own hunch is that our lords and masters realised that allowing big ideas to flourish would inevitably lead to socialism, so they put a stop to it. One way in which this is accomplished is to make people fear knowledge and technology. Another way is promoting the idea that nobody knows better than anyone else.

      David Graeber has a good essay on this:

      http://thebaffler.com/past/of_flying_cars

  4. It is generational failure on the left. Twyford and co are from a generation of (barely) socialists who are ashamed of Marx.

    In 2014, Thomas Piketty is the first economist in three generations to capture the popular imagination who has dared suggest the name “Marx” as a solution to the capitalism of the 1%. Remember, no victory is forever and no system is permanent. It is the 20 somethings reading Piketty today, unecumbered with the baggage of the failure of Stalinism and only knowing the excesses of the 1% who will develop a new interpretation of Marxism – the intellectual engine that underpinned socialism – that will see new ideas enter the mainstream over the next 20 years.

    • Piketty is a social democrat. He hasnt even read Marx.
      But if the Labour Party was to take up Piketty’s solution of taxing the rich they might at least claim to get back to what the First Labour Government was about.
      The problem is that Labour won’t and can’t because the same conditions that applied in the 1930s and allowed Labour to pursue economic nationalism no longer apply.
      NZ capitalism cannot survive protected from the global market and has been forced to deregulate to compete. Muldoon’s ill fated attempt at economic self-reliance proved that.
      That after all was why Labour was one of the first social democratic Govts to break with its protectionist past and adopt neo-liberal policies in the 1980s.
      The Labour Party is trapped by international capital into administering NZ as a neo-colony of the US and China.
      The working class needs to junk both Labour and all Piketty-type retreads of Fabian socialism.
      Workers need an independent workers party that joins forces with workers in every country to oppose the rule of international finance capital and their national NACT-like cronies.

      • Piketty is a social democrat.

        True, but he’s a social democrat who has made the case that capitalism has an internal logic of its own that inevitably leads to unacceptable levels of inequality.

        Those of us of a Marxist persuasion would obviously retort, “No shit, Sherlock”, but Piketty is making the case using widely accepted tools of economic analysis and has masses of empirical evidence on his side.

        The right can stand a lot, but not the idea that capitalism is inherently unfair.

      • There is no ‘working class’.

        Or, if there is, it is a different entity here from those remnants in Europe and North America.

        We simply no longer have even the shadow of the vast numbers who scurried through the gates and clocked in in the big industrial cities overseas.

        Freezing works? Mostly gone. Vehicle assembly. Mostly gone. Textiles? ROFLOL. Appliances? Made under licence in China because there’s a continuous land mass between there and juicy markets away to the west, or even locally, in China.

        Which is how the wee man and his sorry band became elected. ‘Naice’ people who go to meetings and use technology aren’t ‘workers. They ‘aspire’ and aren’t into that political rubbish. Not like those Awful People who go on strike at times inconvenient to us.

        People struggling to get a business off the floor in this small biz-unfriendly country aren’t represented by either National or Labour. It used to be the Greens, sort of, but not now.

        They work – long hours and on many tasks – and they are not represented.

        There is no revolution (or intelligentsia) in the ‘burbs or in the Heartland and back blocks.

        Find another hope, another way.

        • Of course there is still a working class!

          You are right that the size of the industrial working class has declined in New Zealand but the vast majority of us still sell our labour power to an employer to survive, i.e., we are still working class.

          The composition of the New Zealand working class has changed but our material interests are still the same. What we need to discover are organisational forms appropriate to the present and rebuild working class counter-power!

    • There is a reason to dislike Marx and Marxism you know – the 40 odd million people they killed for starters. The failures in the environment, the reliance of surveillance to control the population, the use of fear and the hatred. And Marx is not the be all and end all of socialism. Indeed there were others a plenty at the first international. Just Marxist were the best/nastiest propagandists – and oh wait, they had Marx himself.

      I can think of a few others at the international just off the top of my head with even trying: The Owniets Bukaunin, the Frogs who followed Proudhorn, oh and the labour unions. Socialist one and all, and bugger me, not Marxist either. There were more groups as well, more ideas and more roads to socialism.

      Oh and is it not a funny turn of history that Bukanuin was expelled from the international for utter these immortal words. “Marx’s ideas are authoritarian, and if a Marxist party came to power, its leaders would end up as bad as the ruling class they had fought against” Never truer words spoken.

      So cut the crap.

      Chris, great blog – thought you got to the guts of the matter rather sharply. Well done and keep em coming.

  5. It’s all the neo-liberal fiction of economic competence. The major parties pretend to a magisterial understanding of economics, and the reserve bank was tasked to maintain that orthodoxy.

    It looked great in principle, but in practice our corporations are lazy, anti-competitive, conservative and corrupt and neither party is prepared to accept the consequences: NZ is in serious economic trouble and the epiphenomenal tinkering that has characterised government over the last 30 years isn’t going to even substantially delay the crunch.

    Housing and employment are non-negotiable public goods, and unregulated bankers and wankers have put these out of reach. This is when the people find themselves obliged to compel the government to protect their interests. The antipodean spring is on its way, as inexorable as the movement of the celestial spheres.

  6. The truth is we really don’t know what Labour will do in fine detail.

    I heard that infuriating interview with Key, the denial, the pretence of positiveness, the obscure comparisons with Labour, the strong wages/high employment/plenty of affordable houses and I was angry. What a load of utter bullshit!

    Classic Key though, spins one off after the other, citing what appear to be facts when all he is doing is buying time in an interview.

    As has been witnessed by the last budget, National will steal anyone’s half decent policy to remain in power. In fact at this month Nick Smith has announced the most rushed flawed housing build solution partially in response to Labours housing policy. The other reason is that National are trying to give justification to their specious shortage excuse for house prices whilst giving their buddies in related industries quid pro quo for their donations.

    The “Shortage” excuse hides the truth of course because that is only a part of the problem. Their uselessness and incompetence of hands off management (whilst many a government MP has played the housing speculator game) has been a major part of the problem because speculation both domestic and foreign along with cheap debt has been the big contributors. Another is and will be their Laissez-faire immigration policy.

    Labour should keep their cards very close to their chest until very near the election before detailing my housing policy otherwise National will do a half arse policy to compensate and Labours efforts will have been for nought.

  7. There will be no houses built by a Labour-led government with or without private involvement if they don’t win the election. The discussion on the best way to house the people can be had, and is winnable, only if a reform-minded party, however timorous, has the reins. I have the highest regard for you Chris, but you are often tempted into the old traps that bedevil the left. Purity of strategy should be far less significant than purity of intention. If the minutae of policy become the central focus, schism is inevitable. The belief that we can solve the country’s woes by centralised public intervention is the only precondition for the search for solutions. I am confident that the amalgamated reformers of Labour, the Greens and yes, even perhaps New Zealand First, will search diligently for those answers in a debate that I trust you will participate in. Some answers are to be found in the past others must be found elsewhere. No one who visited the social wastelands Porirua and Naenae became can possibly declare that all housing problems can be cured by building more ghettos, no matter how well constructed.
    Some solutions will be to build affordable homes for middle income young people to get a foot on the ladder. Others will involve creating and offering rental properties for those who cannot afford or choose not to buy. No doubt the lead in these projects will be taken by the government. Unless the current regime survives the forthcoming election.

  8. What Twyford is proposing is a larger mortgage market for Australian banks, opened up with our tax money. It will do nothing to help the very real housing crisis.

  9. The problem I have with the rapid escalating housing market which is similar to a bull market on the stock exchange, is if the Government does not know who actually owns the properties and where these people are domiciled it opens up a whole can of worms with regards to the parking of illicit/illegal funds here in NZ. Also how does the Government collect revenue if these properties are being actively traded to produce capital gains, as actively trading property is a taxable activity.

  10. The generations coming of age soon are really going to curse us.

    They’ll curse the babyboomers for their greed and sense of entitlement (all built on the activism of their parent’s generations).

    And they’ll curse Generation X for being the fools who propped up the whole neoliberal lie all the while their children’s inheritance was being stolen from under them.

    Maybe we should remember it’s our children who will be in charge in our old age… I reckon National Super will be well gone by the time I get old enough – the first thing torn down by a generation that will never see the lifestyle currently enjoyed by our senior citizens.

    • They may also curse us for being an escape destination for Europeans and Asians despairing of their own countries (that made them richer than us), even though we built the country they choose to “invest” in by grabbing all the jobs, housing and land. They come by the tens of thousands, bringing their hundreds of millions, to buy us out!

  11. The so-called housing crisis is almost entirely caused by the RMA.

    There is no shortage of land.

    There is no shortage of material.

    The present government has already shown that excellent houses can be built for as little as 200K http://www.dbh.govt.nz/starter-home-design-winners

    There is no shortage of labour, and even if there was, we can factory build them.

    The whole charade is held up by artificial land values: Move the boundaries for Auckland, eliminate regulatory BS and the problem will disappear.

  12. Having talked up the so-called housing crisis, seems like a Labour-lead government, apart from their build more rhetoric, would simply slash immigration, house prices and interest rates – goodbye market economy. Wow – why didn’t some left-winger think of that sooner?

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