Intro. Lamp-posts, letterboxes, and liquor outlets
Barely three weeks since the election, and Key’s re-elected government is set for one of the biggest state asset sell-offs since… last year. In line for privatisation; an estimated $5 billion worth of State housing.
State housing is one of the most critical of this country’s social service, delivering a much-needed roof over the heads of society’s poorest, most vulnerable, and often most transient. It is fair to say that without state housing – a legacy of enlightened Labour governments and a more sympathetic past public values – we would have thousands more families living in squalor or on the streets, as currently happens in the richest nation on Earth.
In the US, street homelessness is now as much a feature of the urban landscape as lamp-posts, letterboxes, and liquor outlets;
Here in New Zealand, we seem to be going all-out to emulate our American cuzzies, as our housing situation at all levels is worsening.
Overall home ownership has dropped from 1991, when 73.8% of households own their own home (or held it in a family trust) – compared to last year’s census which now reports 64.8% home ownership (or held in family trust).
In Auckland, home ownership rates are worse, 58% today, compared to 64% in 2001.
Homelessness is a more difficult notion to measure, as the Statistics NZ pointed out for it’s 2013 Census,
In general, people are becoming more difficult to contact in any census or survey collection…
• people having no usual residence (eg homeless people)
However an Otago University study, released in September 2013 concluded,
An estimated 34,000 people, or about one in every 120 New Zealanders, were unable to access housing in 2006, according to the latest available census and emergency housing data.
UOW researcher Dr Kate Amore says very little is known about this population, and the study provides the first ever New Zealand statistics on the problem.
“These 34,000 people were crowding in with family or friends, staying in boarding houses, camping grounds, emergency accommodation, in cars, or on the street. They all had low incomes.
Many of these people are excluded from poverty and unemployment statistics, and are not on social housing waiting lists. They are extremely disadvantaged, and it’s great that we now have a way to produce robust numbers about the size of the problem and who’s affected.”
The tragic nature of homelessness was chillingly spelled out when the report went on to state,
A quarter of severely housing deprived people were children under 15 years, living in these inadequate situations with their family.
The report went on to reinforce the growing social problem of the working poor,
About a third of the adults in the population were working, but still could not get a house for themselves or their family.
The 10th annual Demographia International Housing Affordability Survey showed housing as severely unaffordable in all eight of New Zealand’s major centres. Christchurch-based survey author Hugh Pavletic blamed recently centrally-imposed State controls on mortgage loan to value ratio (LVR) restrictions, low mortgage interest rates, and lack of land as reasons for increasing unaffordability.
The same report stated that Auckland house prices were less affordable than Los Angeles or London.
Meanwhile, the Reserve Bank’s loan to value ratio (LVR) controls – approved by Bill English on 16 May 2013 – has apparently succeeded in not just forcing first home buyers out of the housing market, but into renting, and pushing up rents. The average weekly rent for a three bedroom home in Auckland increased by 29%, from $440 in 2005 to $570 in 2013.
Long time property investor, Ollie Newland, has warned of slums developing as over-crowding increases,
Some landlords were capitalising on the desperate market by renting out homes on a room-by-room basis.
“It’s not a good look. We don’t want to go the way of Bangladesh. It’s quite rife. We come across it all the time, especially in the lower socio-economic areas.
So has housing only recently become a critical social problem?
Not according to the Prime Minister…
National’s pre-election policy: 2008
In January 2008, then Opposition Leader, John Key attacked Helen Clark’s administration for Labour’s track record on the economy. He said, in part,
“Tomorrow, Helen Clark will tell us what she thinks about the state of our nation. In all likelihood, she’ll remind us how good she thinks we’ve got it, how grateful she thinks we should be to Labour, and why we need her for another three years.
Well, I’ve got a challenge for the Prime Minister. Before she asks for another three years, why doesn’t she answer the questions Kiwis are really asking, like:
Why can’t our hardworking kids afford to buy their own house?”
Indeed – why can’t our hardworking kids afford to buy their own house?
In the Otago University study (see above) Dr Amore stated,
“We know that housing shortages, poverty, and crowding are very serious problems in New Zealand, so these findings are not surprising. We expect the problem is bigger now than it was in 2006. This study just adds to the evidence that housing is major issue, and we need a lot more quality housing that people on low incomes can afford to live in.”
In the Sydney Morning Herald, when interviewed on the issue of child poverty in this country, John Key was uncharacteristically candid when he admitted,
“Our opponents say more children are living in poverty than when we came into office. And that’s probably right.”
Gerry Brownlee – Waiting for Godot, Tomorrow, and Private Enterprise?
Earthquake Recovery Minister Gerry Brownlee has been made aware of a critical housing shortage in Christchurch, due to the September 2010 and February 2011 earthquakes which devastated much of the inner city. According to a Buddle Findlay report dated February 2012,
The sheer number of buildings up for demolition is significant. The Canterbury Earthquake Recovery Authority (CERA) currently lists 742 CBD buildings that have been or will be demolished. In his state of the economy address in Auckland on 25 January, Prime Minister John Key said that of the 1,357 buildings approved for partial or full demolition in greater Christchurch, over two thirds have been demolished. In addition, the demolition of the up to 7,000 residential red zone homes has recently begun in Bexley.
This has resulted in a massive shortage of rentals in Christchurch, with rents continuing to escalate, and people forced to live in substandard or over-crowded accomodation. A 2013 Ministry of Business Innovation and Employment (MoBIE) report revealed,
No reliable statistics are available on the number of people living in insecure housing. To generate an estimate of the scale of housing insecurity the report starts with a baseline established by a study of homelessness in Christchurch, supplemented by 2006 Census figures on people living in overcrowded housing. Qualitative information from non-government organisations in the area is used to identify plausible increases in the numbers of people living without shelter or in temporary or emergency shelter. Estimates of the housing stock lost due to earthquakes are used to identify the potential increase in numbers of people living in crowded conditions with other households. Through this approach, the report’s initial estimate of the scale of insecure housing is expressed as a broad range. That range runs between 5,510 and 7,405 residents, up from 3,750 before the earthquakes.
The same report updated the decline in housing stock in the quake-ravaged city,
“…it has been estimated that the total housing stock has been reduced by a net 11,500, or 6.2% of the previous housing stock.”
Predictably, as housing stock and rental numbers fell, rents skyrocketed. According to the same MoBIE report,
In the month of February 2013, the average weekly rent from new bonds lodged for the greater Christchurch region was $384. This is a 31% increase compared to the pre-earthquake month of August 2010 when the average rent was $293. The majority of this increase took place in 2012, as shown in Graph 6. Greater Christchurch’s average rent increased $92 per week which is very significant and will have an adverse impact on many tenants’ financial wellbeing. During this same period, Auckland’s average rent increased $50 per week or 13%.
When confronted with this crisis, Minister Brownlee’s response was reported in The Press, on 20 March 2012, offering this “solution” to Christchurch’s housing-shortage;
The Government appears to have ruled out further intervention in Christchurch’s worsening rental housing crisis.
The solution is best left to the market, Earthquake Recovery Minister Gerry Brownlee says.
A month later, Brownlee continued his ‘King Canute-like’ resistance to the problem,
People may be sleeping in cars, sheds and garages, but there is no rental housing crisis in Christchurch, Earthquake Recovery Minister Gerry Brownlee says.
“This is a problem, I’ll accept that, but I don’t think this is a crisis,” he said yesterday.
Brownlee said the steep increase in rent was “not a problem that has been brought to my attention”.
The Government would not intervene in the issue, he said.
“A rent freeze doesn’t increase supply and will never encourage new stock to come in. We won’t be moving to regulate rents but we most certainly are actively providing new housing.”
Brownlee’s defensiveness is understandable. Nationwide, it is estimated that 20,000 – 23,000 new homes are required per year, to meet demand.
However, over the last three years, less than 15,000 per year have been built.
So much for “the market”.
Making Supply “meet” Demand – a sleight-of-hand trick
When “market” supply doesn’t meet demand, there are three options available,
- Increase supply
- Dampen demand
- Ignore the problem
National chose Option 2 as the fastest, cheapest way to address the problem. As referred above, on 16 May 2013, Finance Minister Bill English approved a “Memorandum of Understanding” with the Reserve Bank’s loan to implement Loan to Value Ratio (LVR) controls. In simple terms,
Banks will be required to restrict new residential mortgage lending at LVRs of over 80 percent (deposit of less than 20 percent) to no more than 10 percent of the dollar value of their new residential mortgage lending.
Banks which exceeded the limit (10% of all lending) of low LVR (20% deposits) risked considered reprisals from the RBNZ,
If a bank breaches the speed limit it will be in breach of its conditions of registration. The Reserve Bank would need to consider the reasons for the breach and may impose a range of sanctions.
Again, Key was candid in the plan to address demand-side pressures on housing,
“Even with LVRs introduced, interest rates may ultimately rise anyway, but the intention with these loan-to-value ratios is to provide the Reserve Bank with other tools to dampen demand.”
Not since the Muldoon-led National administration, when price-wage controls froze the economy in 1982 – with dire results – has a government attempted to control a facet of the banking system with such direct, interventionist controls. Again, state intervention was the tool-of-choice, as Key admitted,
“We need to try to help people into their homes but also facilitate an orderly market.”
This was Muldoonism 2.0, and it was coming from a supposed free-market National government, with the blessing of Muldoon’s successor, John Key.
Even before the RBNZ implemented their new, prescriptive LVR regulations, National was pushing for exemptions with New Zealand Bankers Association chief executive Kirk Hope stating the obvious,
“The Reserve Bank policy will have an impact on low income buyers. It will knock them out of the market.”
By December 2013 the Reserve Bank had “buckled” to government pressure. The government realised that preventing first-home buyers from getting into their first house was not a palatable political option. The opposition would have a field day at National’s expense, and New Zealanders would begin to notice.
Forcing the RBNZ to implement first-home buyer exemptions for new-build houses ultimately proved fruitless. By 1 October this year, the damage had been done and the results were wholly predictable;
Experts say the Reserve Bank’s controversial home loan restrictions have achieved the desired effect, but at the expense of first-home buyers.
One year ago today, the central bank introduced limits on high loan-to-value ratio (LVR) loans in an attempt to slow house price growth and reduce risk to the financial system.
The latest bank lending data from the June quarter shows the rules have been highly effective, wiping $5.5 billion worth of high-LVR loans from the balances that were recorded on September 30, last year.
HSBC chief economist Paul Bloxham said the limits had helped dampen house price inflation, though it was difficult to say by how much.
“It’s still unclear as to whether LVRs were the driver, or the higher interest rates were the driver.”
Bloxham said the limits had worked well in removing risk from the financial system, but not without social consequences.
“Along the way . . . the largest effect it’s had is to cut the first-home buyer out of the market.”
New Zealand Institute of Economic Research economist, Shamubeel Eaqub, was damning of the government-sanctioned LVR restrictions, saying that first-home buyers had been unfairly blamed for the housing bubble,
“The data we have seen very clearly shows it was investors. We don’t think there’s any reason to maintain the LVR restrictions any further, especially now [the Reserve Bank] has raised interest rates.”
Bear in mind’s National’s technique for solving problems. It would set the stage for New Zealand’s growing shortage of social housing, and National’s ‘Clayton’s‘ response.
TV3 News: State housing sell-off worth $5B
Radio NZ: Home ownership on decrease
Ministry of Business, Innovation, and Employment: Housing key facts
Statistics NZ: Coverage in the 2013 Census based on the New Zealand 2013 Post-enumeration Survey (pdf)
Otago University: 34,000 people missing out on housing, University of Otago research shows
Fairfax media: Housing affordability getting worse
Reserve Bank NZ: RBNZ signs MOU on use of macro-prudential tools
NZ Herald: Rents rise as buyers forced out of market
John Key: A Fresh Start for New Zealand
Sydney Morning Herald: The Key Factor
Buddle Findlay: The Progress of earthquake related demolitions in Christchurch
Ministry of Business, Innovation, and Employment: Housing Pressures in Christchurch (pdf)
Fairfax media: No Christchurch rental crisis -‘Pontius’ Brownlee
Reserve Bank: Loan-to-value ratio restrictions – FAQs
Dominion Post: Few first home buyer details in PM speech
Te Ara – TheEncyclopedia of New Zealand: Muldoon announces a wage and prize freeze, 1982
TVNZ News: Govt pushes for loan restriction exemption
Fairfax media: LVR works at first-home buyers’ cost
Scoop media: Gateway to improve housing affordability
Hekia Parata: State housing improved in Porirua
Dominion Post: Housing policy will destabilise life for children
Fairfax media: Over-crowded house blamed for baby’s death
Previous related blogposts
Previous related blogposts
Facebook: Affordable Housing For All
Facebook: Housing NZ Tenants Forum
Facebook: Tamaki Housing Group- Defend Glen Innes
The Jackal: More homelessness under National (30 July 2012)
The Standard: Unaffordable housing & the culture of greed
No Right Turn: A surprise policy
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