Billions of dollars are currently being transferred to wealthy New Zealanders in the government’s attempts to stimulate the economy. The Reserve Bank has essentially committed to printing up to $128bn (US$90bn) of new money, lending much of it as cheap credit to banks, who then lend it to those who can afford to buy more and more houses, and thereby grabbing the capital gains.
The result is rocketing house prices, making accommodation unaffordable, especially for those seeking to buy a first home or rent accommodation. In fact, this week New Zealand was named as the seventh most expensive place in the world to buy a house.
Although the finance minister, Grant Robertson, has just written to the Reserve Bank to suggest they need to consider their impact on house prices, in reality there seems little that Labour is prepared to do to fix the escalating crisis. In fact, it’s as if the government is shrugging its shoulders, believing that market forces alone can somehow magically correct the crisis.
This is a very odd thing for a Labour government to do. Traditionally, progressive governments intervene in the market to make housing cheaper, not more expensive. Back at the start of the 20th century, the Liberal government passed the Workers’ Dwelling Act 1905, embarking on a state housing programme that led the world. Then in the 1930s under the first Labour government of Michael Joseph Savage state house building was turbo-charged, and the concept of a “home for life” was introduced.
The prime minister, Jacinda Ardern, has been particularly keen to associate herself with that pioneering first Labour government, using a portrait of Savage as a prop behind her in official communications. But, unfortunately faced with the same problem, she firmly draws the line at emulating his bold approach.
The problem is basically a shortage of houses – especially for those at the bottom of the housing market. One economist has estimated that New Zealand is short of about 500,000 low-cost dwellings. This has proved a boon for landlords, sending rents skyrocketing.
The answer clearly is for the government to begin a programme of mass state house production. Something in the order of 100,000 new state houses are needed.
The current government is building new state houses – but the numbers are piffling: about 4,000 were built in Ardern’s first term, and although they are committing to build more over the next few years, this is on such a small scale it will hardly be noticed. The waiting list of families most severely in need has tripled under Labour’s watch, and stands at about 20,000.
Current state housing stock levels are entirely inadequate: New Zealand has one state house for every 70 citizens, when even in the 1990s there was one for every 50. Labour and National governments have both failed to build houses to keep up with both population rises and increased need. We have the lowest level of state houses since the 1950s, and the OECD tells us we are now trailing other countries instead of leading.
It might be argued that New Zealand doesn’t have the construction capacity. However, on the question of ramping up the numbers of state houses, the head of Kāinga Ora (formerly Housing New Zealand), has bluntly stated: “We have capacity to build whatever the government wants us to build”. Nonetheless, a major expansion of quality social housing would probably require the establishment of a state-owned construction company, using mass prefabrication.
This will cost money. Many billions of dollars. And that’s the problem – during the first term of Ardern’s government, their fiscal conservatism ruled out any significantly increased expenditure. Yet in the Covid era, the government can suddenly afford to spend billions on wage subsidies and can print billions to extend in cheap credit to the banks. The crucial difference is that the building of houses would create an enduring asset, rather than just a giveaway to the wealthy.
What’s more, governments continue to spend huge sums on the accommodation supplement for those on low incomes in private rentals, or indeed on renting motels for the homeless. Surely this money is better directed into building up social housing.
There’s an argument that dealing with demand for housing at the bottom of the market would also “trickle up” to help alleviate the problem for first home buyers. Some on the political left argue that massively expanded social housing would provide significant downward pressure on rental prices. As a result, many landlords would have to sell rentals, increasing the numbers of houses available to first home buyers, and pushing down prices for everyone.
Of course, there are a lot of vested interests in keeping prices rising. Politicians, including the current prime minister, seem scared of disrupting home-owner voters and property developers who are reliant on inflated asset prices.
State housing is a genuinely leftwing and progressive answer to the current housing crisis. Yet the government persists with its discredited flagship KiwiBuild scheme because it was designed to cost the state very little. The KiwiBuild concept is essentially the antithesis of state housing: the state is supposed to underwrite private developers to supply moderately expensive houses to sell to the middle classes. This was always a rather centrist policy initiative masquerading as something progressive. And its inherently flawed design means that although 100,000 houses were promised over ten years, so far it has produced only a few hundred.
There is now massive pressure on Labour to admit that their hands-off approach to building houses has failed. And while it’s good that there is panic about plummeting levels of home ownership, there has been very little attention given in the debate to those at the bottom of the market – especially the homeless. To deal with this, a genuinely progressive government would simply return this country to the large-scale state housing that New Zealand used to be known for.
Dr Bryce Edwards is the political analyst in residence at Victoria University of Wellington, New Zealand, where he is the director of the Democracy Project