EXCLUSIVE: The housing crisis narrative suits the Government’s agenda for now
The Housing Minister’s commissioning of three left leaning commentators to undertake a stocktake of New Zealand’s housing has produced the desired result both from the Government and the Opposition. Housing Minister Phil Twyford has claimed that the stocktake report shows that the housing situation is much worse than the previous Government admitted while National’s housing spokesman Michael Woodhouse has claimed that the stocktake is a predictable beat-up and that Government is big on promises but short on specifics.
A Stocktake of New Zealand’s Housing was authored by public health professor Philippa Howden Chapman and me and released on 12th February. The release event and media coverage of it was dominated by Shamubeel Euqab who was only nominally involved in preparing the report. He is quoted as saying that the private rental housing market was a cluster#@!* and that we needed to build 500,000 additional affordable houses and not the 100,000 the Government is aspiring to build through its KiwiBuild programme. The actual stocktake report makes no such claims but the media appears to have had little interest in evidence or moderate argument.
The Stocktake report attempts to deal with a wide variety of topics across the housing landscape – from rising rents, poor quality housing, homelessness, declining home ownership and tenure insecurity amongst others. It doesn’t offer policy suggestions because that was not in the authors’ brief.
While the report draws many conclusions one compelling one is just how stuffed the private rental housing market is. None of the fundamentals in this market line up to produce anything but rising rents, increasing shortages and often poor quality housing. These outcomes are likely to continue for at least five years and perhaps longer. For example yields on rental property investments have fallen from 6.5%-7.0% in 1997 to 3.5%-4.0% in 2017. The average cost per square metre to build a new house has risen 33% in inflation adjusted terms in the past 10 years. Since 2012 Rents have risen by 25% over the past five years while average wages have risen by 14%.
The private rental market of old was sustained by two things. The first was the promise of untaxed capital gains and perhaps – if could arrange high gearing of the investment in your ‘little renter’, maybe even a tax write-off for the cash losses involved. The second was that the investments were not normally in new housing but in lower valued existing properties in working class neighbourhoods. These lower-valued properties had often been in owner-occupation meaning that tenure patterns in these neighbourhoods changed quickly from a stable balance of owner-occupiers and tenants to a predominance of tenants. Consequently the neighbourhoods changed with higher rates of residential mobility, poorly maintained housing and reducing social cohesion. Not that this matters to the middle class investors creating this environment – they made sure they didn’t live there.
The prospects for the private rental market looking forward are dismal and Shamubeel’s cluster#@!* description is apt. The lower valued properties which were the favourites of Mom and Dad landlords have been bought up. Outside of tiny CBD and inner city apartments, the opportunity to buy newly built low cost properties for investments is quite limited given construction costs and land prices in the suburbs. On any account the promise of further capital gains is faint given that we have probably reached the top of the price cycle for housing and are likely to face several years and perhaps even decades of stable prices. Furthermore tenants have been squeezed by rents rising more quickly than incomes and there is unlikely to be much more to squeeze from low-income tenants.
This would not be so bad if we had not become so dependent on Mom and Dad investors to provide rental accommodation to low-income households. Around 70% of the additional 150,000 households formed in the past decade have been tenant households. That amounts to about 10,000 extra tenant households each year. In other words to meet demand we need 10,000 Mom and Dad investors stumping up with cash and debt of at least $400,000 per house– and at yields of 4%. That’s $4 billion per year.
This may happen but seems unlikely given the much high overall yields made during the heady days of rapid house price inflation. As well many of the Mom and Dad landlords are baby-boomers saving for their retirement which of course is happening right now. In addition banks have become weary of highly geared lending on investment properties.
The crisis narrative to describe the status of the private rental market is accurate. Rents will continue to rise. Queues for available rental properties may grow longer. Overcrowding will continue and may worsen.
The problem with this crisis narrative is that it will soon wear thin as the depth and the intransigence of the housing problem becomes more apparent.
There are not simple quick answers here. Outside of a major meltdown in the real estate market, we are unlikely to see a large scale market adjustment which addresses the current imbalances anytime soon.
One obvious solution is good old fashioned public investment – especially in state housing. But this is an extensive and long-term option. I have previously suggested that we should be building at least 2000 additional state houses per year and that the cost of this is around $1 billion annually. In its 2017 election campaign promised to build at least 1000 but is now looking at how it might up this to 2,000 each year.
As the Finance Minister considers how he might build 2000 state houses per year no doubt the true impact of the Labour-Greens Budget Responsibility Rules will become apparent. These rules include bringing core Crown debt down to 20% of GDP and maintaining recent historic ratios of Government expenditure to GDP. Both great neo-liberal ideas. All this is fine until the economy stalls which of course is exactly the time when we should be building public housing.
To avoid breaching such self-imposed constraints the Government and its budding corporate finance partners might dream up new forms of debt like bonds and Crown guarantees. As we have seen with everything from the South Canterbury Finance extortion to the AMI bailout the public ultimately bears the risks and costs for such creativity. As well these corporate partners will clip the ticket on these creative deals and probably cost us hundreds of state houses in the transactions.
The housing crisis will be with us for some time yet and even with considerable Government effort and commitment. Expectations that the fix is quick and cheap need to be re-set immediately. For this to happen the Government needs to get real about the costs and risks involved and take the public into its confidence as it discovers the difficulties and challenges which lie ahead.
Alan Johnson is a policy analyst for the Child Poverty Action Group and the Salvation Army
Labour promised 10,000 houses a year and are either liars or fools because it can’t done. There is no capacity in the industry.
I regret to agree, we will have this government bend over backwards to let in thousands of Philipino and Chinese construction workers to get the job done, that should be done by trained and qualified Kiwis. NZ is a basket case, I have observed it over the years, governments from both sides ruin this place, with short term and dumb agendas, they lie and cheat, and we will get more of it.
The dumbest thing in this country is the fake growth, they gave up decades ago to achieve quality growth and productivity, they simply increase the population, the dumbest and laziest of all policies. And Labour are about to repeat the mistakes of Nats, only trying to gloss it all over. What a disgrace this country is.
Yes, the growth narrative is at the heart of the predicament, and bringing in more people to fake the growth is a road to catastrophe. Which is what we now have.
That said, all governments in the western system do exactly the same thing.
That’s not quite true Mark. Part of the problem is that most of the NZ building industry – whose labour force is already constrained due to decades of government under-investment in training new workers in the relevant trades – is busy building McMansions and holiday homes for the international wealthy, commercial buildings, and so on. That’s because the people who want this stuff built can afford to bid up the price of building to the point where only they can afford to employ building companies. The Ōtautahi rebuild has amplified the problem by soaking up most of the surplus building labour capacity created through short-term and long-term immigration of workers with building skills.
One solution nobody in the political class seems to be talking about yet is tiny houses. Tiny houses are much cheaper and quicker to build, and people I know have built their own tiny houses, even though they started with zero building experience, with help and supervision from friends who do:
https://www.stuff.co.nz/business/property/96651151/millennials-think-theyve-found-one-answer-to-aucklands-housing-shortage
It would be totally achievable to build 10-20,000 of these a year, to house single people, childless couples, and even healthy, independent seniors. The government could help by doing things like establishing tiny house building sites, where people could get advice and assist each other with their builds, and identifying vacant areas of public land where the resulting tiny houses could be parked and lived in. This would take a lot of pressure off the existing housing stock, freeing up houses currently inhabited by groups of adults or childless couples, which could then be used by families currently living in vans.
Build the capacity. It was obvious from the get go that they would have to do so. It’s why Kiwibuild has a ramp up time.
And if the government brought in 100 of these we could easily build 30,000 houses every year.
Still, that would require securing the resources to build them.
It can be done, but not if we need humans swinging hammers. It can only be done using new technologies like 3D printing, robotics and pre-fabrication.
If Phil Twyford was any kind of leader at all, he would announce a new “Manhattan Project” to solve the housing crisis using these technologies, and make New Zealand a world leader in this field.
The NZ housing and construction industry is broken at the core, and needs a fundamental overhaul, conducted by the government. Fletchers has a near total monopoly in the sector (a serious issue in itself), yet still managed to lose a billion dollars this year. This is a farce. The government must stop being intimidated by the oligarchs sitting at the Business Round Table and must act, or face the electoral consequences in 2020.
Unfortunately, Phil Twyford appears to lack the courage to break with vested interest and challenge the status quo. Which means that Labour is headed for political oblivion.
Yep, a massive R&D budget into new technologies rather than waiting for them to come here from other countries which then costs us more.
Fine by me. Need a Greens government and then we’ll get the change that we need.
Fuck all y’all nimbyism :p and build the god damn houses. The issue has less to do with residential construction and R&D and more with the idiotic hyper-concentration of corporate offices. Spread the jobs out and miraculously you’re no longer pressed for space.
How on Earth did we even build the Clyde Dam? Manapouri Project? Auckland Harbour bridge? Airports all over the country? 69,000 State houses?!?!
Is this where 35 years of neo-liberalism has left us; unable to build for ourselves?
If so, that would have to be the final indictment.
‘Is this where 35 years of neo-liberalism has left us; unable to build for ourselves?”
Pretty much…an interconnected race to the bottom….and only one way out ,that no one is prepared to take.
When we have all experts talk a bout the housing market, they never mention that the market of owners is limited to those who have access to funds that buy property. Nearly half of the population are totally locked out of the market, as they call it, as they are disowned, slave like workers, paying rents to landlords who cream it, more or less.
This society is more unequal as it has been since the 1930s, it is damned disgrace, I still struggle to understand how National managed to manipulate things and stay in power for so long. Are people in this country really that damned stupid, it seems so, I regret.
Surely if this government persists in putting more money into the NZ Super fund, it should at least get the credit by having a lower net debt figure? The 20% net debt goal currently does not net off NZSF assets– it should. If it is did the straight jacket would be greatly loosened
Real capacity constraints in the building sector are another constraint however
The reason state housing is a failure has little to do with Labour. The reason it failed is a more conservative housing plan than Labour isn’t actually possible. State housing was the most conservative possible housing stock that humans can design that actually works. Any that are more conservative than it would cost more money, due to more people not being on housing corp waiting lists (and the resulting emergency housing stock and lack of upkeep related issues), and the National Party don’t want to spend more money, they want to spend less, and the only way to do that would be to create a less conservative property market that actually fixes inefficiencies in the system with things like regulations and well designed housing. Their initial premise was impossible from the start, they wanted a more conservative plan that costs less money so they could do more tax cuts. If we want to save more money, we’d have to do a less conservative BS, if they want a more conservative plan, they’d have to spend MORE money (because even National aren’t crazy enough to require emergency housing tenants prove rental references, ability to pay or eliminate emergency housing altogether).
If they hadn’t tried to claim State housing was anything but the most conservative housing stock possible, cribbed from Paula Bennett and the expensive affordable housing to appease the property market lobby and the blue-dog (just not National due to some issue or another where they can’t follow the party’s platform, while able to find the big-tent in caucus somewhat more palatable, and being political enough not to try and jump the waka or other silliness) in parliament. It’s a complicated stake of paper work to make up for the issues of a conservative housing plan, and was only really an improvement on what we had before, but no component of it was one that could be removed or made more conservative without also costing more money, due to how it was designed and barely passed. Twyfords kiwi build is off course less conservative than what we had under National, but also less expensive. Because state housing isn’t a system that conservative National MP’s actually work well with, due to having the wrong incentives and needs built into it’s nature.
Rents rise because they are propped up by government assistance. The near-bottomless pockets of people spending other people’s money.
Magnet cities – Auckland, Hamilton, Tauranga, etc.
Relocation of work to the Places to Be.
Low wages/salaries for the majority. Hard to milk a dry cow, yet serfs are needed and we don’t want them in dormitories. Yet. The transport system is too primitive for those long commutes.
So the government (comprised of self-serving politicians) steps in to pay Working for Families but only lucky ones, and rent top ups.
Pure and simple. Government interference in ‘the market’ and the property renters are (at least some of them) creaming it. Middle class and bank welfare.
Also: there is this long term bleating about ‘baby boomers saving for their retirement’. There are other cohorts doing just the same.
If the assorted governments of the day keep on spending the pension funds, crashing the economy, throwing people on the scrap heap so they never regain their earning capacity – of course and naturally people will look for ways to hedge against that interference. You all would, if you could.
It has to be said – ‘Not all boomers’. Just some: lucky, or shrewd and diligent. Some. Others are still renting and living precariously.
And if all the boomers left the market. Gave their homes to those struggling young breeders – then what? Die in droves on the beaches, like fairy prions? Live in packing cases or shipping containers? Oh, aren’t we the wise and compassionate ones! (Not.)
It’s like food stamps in the U.S. The only way the poorly paid employees of Walmart can live is by being subsidized by Govt. paid Food stamps. It’s wonderful how the Super Rich embrace Socialism when it enables them to increase profits. And on top of that they get Trumps tax cuts!
Why did national sell so many sate houses in places like Whanganui now the new government has to build more dumb dumb dumb policy and dumb people that keep voting for them
… ‘ How on Earth did we even build the Clyde Dam? Manapouri Project? Auckland Harbour bridge? Airports all over the country? 69,000 State houses?!?! Is this where 35 years of neo-liberalism has left us; unable to build for ourselves? If so, that would have to be the final indictment ‘…
– FRANK MACSKASY
And this is the very heart of the matter.
Remember way back when the treasonous shitter Jenny Shipley stated that only those who were ‘self employed’ will ‘make it’ ?
Remember back when she and other treasonous neo liberal shitters started pushing their shit about having to ‘save for a decent level of retirement’?
Remember when the other treasonous shitter known as Ruth Richardson introduced the Employment Contracts Act 1991 to make damn sure the rich got richer and the poor became servile peasants ?
Remember when this whole thing began?
1984 to be precise.
And the whole motivation for paying less than adequate low wages , becoming a landlord and building an investment portfolio? It was because of the treasonous neo liberal shitters.
Are we really that dense, that given to poor memories , that easily herded that we dont even remember when this whole thing started ??? And WHO started it ?
And while we are talking immediate solutions for the near future because WE ARE in a crisis at the moment , it would not hurt to reflect on JUST WHAT changed to create these odious conditions in the first place. Long term , – this country and its people are going to have to ask some hard questions.
And for those of you who do not understand , – HERE is a good place to start to realize just how much the people of this country have been ripped off over the last 3 decades.
New Right Fight – Who are the New Right?
http://www.newrightfight.co.nz/pageA.html