Opposition to Housing Policy

In 2007 National’s Leader of the Opposition, John Key, said there was a housing crisis. In 2018 National’s Leader of the Opposition, Simon Bridges, said there was a housing crisis. Bridges failed to observe that there had been a National Government, led by Key, in much of the decade in between.

Not that Labour did much better. In opposition it decided that a Labour Government would build 50,000 houses in a decade, and then – apparently at a whim – announced a target of 100,000. It appears little thought was given to how to deliver the promise. In government, it manifestly has failed in the startup phase.

We will have to wait to find out whether the next time in opposition Labour will declare there is a housing crisis. Hopefully it will do a bit more than the Key Government in its nine – or whatever – years of government.

It has set up a Ministry of Housing and Urban Development. There have been such agencies before but they were subsumed into the Ministry of Business, Innovation and Employment by the previous government. This is not the shakeup you should do if you think there is a crisis.

Sadly, while a new ministry makes sense, it was only established in October 2018 and it will take time to settle in – a traditional view is that it can take up to ten years for an agency to get up to full speed. It may be even harder for a housing ministry, because there is not a single housing problem but a set of overlapping interconnected ones.

The danger, always the danger in New Zealand, is that it will get involved in various interventions without having carefully analysed the multitude of problems. Here is a list of the analytic underpinnings of the problems.

First, over the last decade there has been a Minsky bubble in which housing investors – including single homeowners – have been betting on rising house prices. At some time a financial bubble will stop – it is a kind of Ponzi scheme – leaving some investors stranded.

Fortunately, the bubble, thus far, has deflated rather than popped; it is still there in some regions. This means there has not been the widespread bankruptcy which is usual at the end of a bubble. But on a number of tests house prices remain too high. Some households are struggling to service their mortgages, others find housing prices are too expensive for them to purchase their own homes. A possible outcome is long-term housing price stagnation.

Not incidentally, the bubble has encouraged offshore borrowing for leveraged house purchases adding to concerns of financial instability.

Second, connected but different, is that housing is a significant financial asset in many householders’ wealth. Arguably the weight of housing in household portfolios is too high – perhaps the consequence of tax advantages and expectations of prices rising faster than inflation. The effect of the overweight is that household savings are diverted from productive investment depressing the economy’s performance.

For housing impacts on the wealth distribution, adding to its inequality because some people cannot even take the first step towards owning their own home. (A technical point is that the standard economic models assume that the purchaser should be able to borrow on their projected income, but in practice financiers are understandably more cautious. This is a reminder that you cannot use the standard economic model without a lot of adjustments.)

And yet a house is a home fundamental to wellbeing. That is not the same as an investment opportunity, but the two quite distinct activities are hopelessly intertwined, not least in the public rhetoric. It may make sense to subsidise homes; does it make sense to subsidise speculative financial investment in housing?

Third, housing outgoings reduce effective income. Moreover the outgoings – a large portion of many household budgets – are erratic between households so that housing outgoings impact greatly on wellbeing and the income distribution (which is different from the wealth distribution).

A particularly acute issue has been the homeless and those in manifestly inadequate accommodation. Is it that they do not have sufficient wealth or do they have insufficient incomes? Some seem to be people who simply cannot cope and require shelter support.

These considerations sometimes lead me to occasionally ponder whether we need to have a conscious wealth redistribution program in parallel to the social security which redistributes incomes. It is easy to see its problems but the real challenge is how to design a wealth redistribution program which meets the valid objections.

Fourth, it is difficult to change the supply of housing. (For instance, as large and unreachable as the Kiwibuild target was, it would have added less than one percent to housing supply each year.) Yet the housing construction industry is a large part of the economy.

The construction industry is also struggling with the poor quality of so much housing; issues include leaky buildings, asbestos, damp housing, cold buildings and earthquake fragility.

A related problem is whether housing goes out or up. Adding houses to the fringe of a city adds to the infrastructural demands (plus transport congestion) which tends to be charged to everyone rather than the land developer and purchaser. Going up (and infilling) makes more sense from this perspective but requires greater building skills. Apartment blocks also involve different lifestyles from those in which most of us grew up – neither garden nor decent play area for children.

Finally is the politics. Housing policy involves numerous self-interest groups ranging from land developers and builders to those concerned about a particular problem – say warm and dry housing.

Finally? Did I write ‘finally’? There are lots of other issues. The point I want to make is that there is a set of separate but interlocking ones. It is easy to focus on one and ignore the rest, perhaps making them worse.

Will the ministry of housing develop a comprehensive overview? What I do not see, as is so common for New Zealand governments, is the promotion of hard thinking about the issues. Superficial thinking is so much easier politically – and fiscally easier in the short term, even if it is ineffective and expensive in the long term.

We get into the muddle because we default to market solutions which do not work. Not to mention it is so easy to say that there is a housing crisis without covering the complexities. Opposition is a bad place to develop housing policy. Sadly, as the last decade has shown, being in government may not be much better.