Drivers of the Housing Crisis

The Problem
Humans seek security and safety in shelter, supporting social, psychological, and economic benefits. Those without shelter are left exposed to weather, illness, and exploitation. Humans find value in shelter, and therefore markets exist to buy and sell the homes that provide that shelter.

In a free market economy, the forces of supply and demand dominate. According to Statistics New Zealand data, the number of dwellings in Auckland has increased by 30% in the last 20 years. The Auckland population has increased by 43% in the same time period. The Ministry of Business, Innovation, and Employment estimates that there is now a cumulative shortage of at least 25,000 dwellings in Auckland. Others estimate this to be larger, with the Productivity Commission estimating a shortage of 60,000 homes by 2020. Simply put, there aren’t enough new houses for new people to live in.

As a result, land prices have more than quadrupled over the last 25 years, and house prices (after inflation) have trebled in the same time period. The average house price is set to exceed $1 million in the next 12 months; this has already occurred in North and East Auckland and in some city fringe areas. The property-price-to-median-income ratio in Auckland has reached nine; the rule of thumb is that this ratio should not exceed three (although there are few big cities where this is true).

This exposes Auckland to two key risks:

  1. long-term societal imbalance as the gap between homeowners and renters increases due to growing property wealth from capital gains
  2. potential sudden burst of the housing bubble with collapsing property prices, impacting the wider economy, and disproportionately affecting the less wealthy

Owning housing has become inaccessible for a large proportion of the population, forcing them to rent while transferring wealth to existing homeowners. This disproportionately affects young people, with economist Shamubeel Eaqub coining the term “Generation Rent”. The high cost of housing keeps families in a cycle of poverty, with housing costs leaving insufficient funds for other basic needs, or in some cases insufficient funds for housing leaving families homeless. Widening inequality and increasing poverty is a key predictor of falling happiness within a society.

The Drivers
Stable pricing is predicated on a balance between supply and demand. Political parties, independent analysts, and media pundits all have differing opinions on whether the cause of the Auckland housing crisis is on the supply-side or the demand-side; in reality, it is likely attributable to both. Here are twelve drivers from both sides – some are from the Auckland Council Chief Economist, some are from the Productivity Commission, and some are from my own analysis.

  1. High net migration into Auckland, reflecting New Zealand’s current economic strength relative to Australia and Europe, as well as a booming education sector targeting international students. In 2015, net migration into Auckland was at least 30,000. Note that net migration is both more people coming into Auckland, and fewer people leaving. This is most apparent to/from Australia; a few years ago New Zealand was (net) losing 40,000 people a year to Australia, last year we (net) gained 1,600. More stats available at TransportBlog.
  2. Historically low interest rates, both worldwide and in New Zealand, reflecting efforts by central banks to stimulate their economies to avoid the long-term impacts of the Global Financial Crisis. In 2008 the OCR was at 8.25%; now it is at 2%. With low interest rates, people are more incentivised to borrow (and spend). More stats available from the Reserve Bank of New Zealand.
  3. Increasing willingness by banks to fund household lending, based on international lending standards viewing mortgages as “safe lending” that are less risky than corporate lending. Household debt is now at over 160% of nominal disposable annual income. It’s set to keep going up as interest rates keep falling. More analysis available from the Reserve Bank of New Zealand.
  4. A demographic shift towards smaller households, with smaller family units and an aging population. In 2013, almost half (48%) of all households in Auckland had only one or two people. More stats from Auckland Council and the New Zealand Initiative.
  5. Council constraints on the supply and usage of land in Auckland, leading to artificially low housing density that is inconsistent with density patterns in other large cities internationally. Auckland has a pretty uniform population density of 32 people per hectare beyond 2km out of the city centre; in New York it’s 100 people per hectare at 2km, in Barcelona it’s over 300 – it takes over 20km for population densities there to match Auckland levels. More stats from New York University/NZ Treasury.
  6. Vocal opposition to intensification by existing ratepayers (synonymous with homeowners), expressing concerns about compromising standards of living and reducing property values. Councils and governments are (arguably) democratic and dominated by older and wealthier segments of the population. It is largely in their capitalistic self-interests for house prices to rise, increasing their personal wealth. The Productivity Commission has identified this as a “democratic deficit” due to the disproportionate influence of homeowners in local council elections and consultations. More on this from Bernard Hickey (and everyone else talking about NIMBYs).
  7. Onerous and uncertain resource management requirements and building consent processes, disincentivising new developments and increasing compliance costs. It can be very risky for new developers, because they can invest millions of dollars into large-scale development, only to be blocked after a few years by rejected consents.
  8. Skills and labour shortages in the construction industry, stemming from unattractive low wages and punitive liability rules. New Zealand has maintained a net deficit of construction workers for the last 30 years. More analysis from Statistics New Zealand.
  9. Speculative investment, with foreign and domestic investors accounting for 43% of purchases, driven by tax-free treatment of capital gains attracting investors towards New Zealand housing. The exact proportion of foreign vs. domestic (and who counts as foreign and who counts as domestic) is controversial and uncertain. More stats from CoreLogic/Auckland Council (section 3.2.7).
  10. Auckland Council’s extremely high debt levels, currently at 275% of revenues (annual borrowing costs are roughly 12% of revenues), negatively impacting the Council’s ability to build the necessary electricity, water, and roading infrastructure to support new dwellings. More stats from Auckland Council.
  11. The Productivity Commission estimates that the average floor size of new dwellings has increased by more than 50% since 1989, requiring more land in order to house the same number of people. More stats from Productivity Commission (section 3.3).
  12. The “leaky homes” crisis of the late 90s leading to negative perceptions towards the construction industry and causing ongoing costs to affected families and local councils. This has also made policy-makers conservative, erring on the side of caution and stringency when it comes to RMA and related reform.

A major challenge is the inelasticity of housing supply – it takes both a long time and a lot of money to build housing and related infrastructure. This limits the responsiveness of housing supply to comparatively fast changes in housing demand, creating the opportunity for imbalances to snowball into crises. This also creates the potential for overcorrection, due to the slow response of policy outcomes.

The Conclusion
Any policy that only addresses one of these drivers will not resolve the housing crisis. A combination of policies from both central and local government is required in order to rebalance supply and demand, or at least reduce the size of the currently widening gap. Perhaps this has already been happening – there have been a number of actions taken in the last few years, and it will take many more years for the effects of those actions to be seen in the housing market. We can only wait for the market to respond.

Power to the tenants: re-claiming the rental market

By Ellipsister (Co-Ed.)

The housing crisis does not stop at home ownership. It is about rents. It is about landlords. And it is about tenants.

Like many in my generation, I am a serial renter. In fact, we (my whānau) currently pay rent in two places because I commute between Auckland and Wellington. Although, I only pay rent for a room in Wellington, and not an entire house. That I am in a position to commute is a privilege that very few others can afford. I get that. However, despite my privilege, my experience and the similar experiences of others is not irrelevant simply because of the wider reaching social impacts of the housing crisis on low-income families and earners. We need to get on the same page. The reality is that it is situations like mine – those of middle income that contribute to homelessness and not in the way you might think.

 The spectrum

Talk of the housing spectrum from homelessness to home ownership is common in policy circles. But it is flawed. The spectrum is not linear and treating it as such perpetuates the problem. A major assumption from policymakers and political parties alike is that if we just build more houses (supply) and make finance more readily available to prospective buyers then bingo! Everyone will have a home. We just have to look to the US sub-prime lending that led to the 2008 GFC to see the horrible consequences of that kind of an initiative. We need to understand that the housing crisis is as much about rules and the distribution of power, as it is about supply and finance.

 The middle

In the past, the housing cycle saw people move into their own homes, or upgrade their rentals as their incomes increased creating financial security. The housing crisis that began in Auckland and its cancerous spread to other regions has created a short circuit in that cycle. For my generation, only those people whose parents can help can continue on that cycle. The rest of us languish in dilapidating properties, unable to save for our own homes due to the excessive rental prices we pay, unable to upgrade to suitable rentals because we are priced out of the next rung on the ladder, and often unwilling to move because value for money properties no longer exist. This means that we – the middle-income earners – have captured the affordable rental and created a rental scarcity for low-income earners. We are the group who in practical terms not only prevent low-income whānau accessing affordable rental homes, but exacerbate the growing levels of homelessness.

I know it’s not right to talk about middle income earners moving into nice homes so that low income families can access their left over rundown rentals. I’m not proposing that we only find solutions for middle income earners. I am highlighting that part of the problem lies in the rental space and the short-circuiting of a cycle that has operated to minimise homelessness. Ignoring the hamstringing of middle-income earners prolongs the problem of homelessness, inaccessibility to suitable rentals, and the unequal share of power held by landlords.

 The key issues for renters

Some general themes that consistently arise for renters include:

  • Move in costs: These upfront costs usually involve –
  • 2 weeks rent (up to 4 weeks max) as bond;
  • 2 weeks rent in advance; and
  • 1 weeks rent plus GST as a letting fee.

For a middle-income family, the rent will often be around $500-700 per week. This amount of rent signifies these families could conceivably service a mortgage of their own. But even on good income, people don’t generally have over $3,000 just sitting around that makes it possible for them to move and given the rental costs, are not in any position to ‘save’ the 20 percent deposit needed to make them eligible for a mortgage.

For the record, I’m not interested in anecdotal policy qualifications of ‘I saved X while doing A, B and C, so everyone else is just lazy and stupid’. I mean it’s great that the system worked for those of you who think like that. You clearly had the privilege of some particularly favourable conditions. But by your own admission, it’s not working for the majority of other people. Evidenced by your view that people who don’t experience the world as you do are, um stupid and lazy.

  • Affordability:  Price is the key determinant for whether a renter will tenant a rental property. We know that rental prices vary for homes of similar size and quality and we understand that major price discrepancies are often associated with location. But this isn’t always the case, and despite some reports claiming rents are not increasing we renters are seeing spikes in prices on properties without any maintenance or upgrade. The reality is that a 3-bedroom hardy plank shit box with no upgrade since it was built in the 1970’s will now sting the renter over $500, a price that only a few years ago would get you a new build or renovated rental.
  • Quality:  Renters want and need a property that is warm, dry, safe and functional (i.e. no outstanding major repairs). What is on offer is often uninsulated (or depleted insulation), damp homes in need of some fundamental repairs (e.g. wiring, light fittings, plumbing, joinery) and upgraded furnishings such as carpets, curtains, wallpaper or paint.

 

  • Tenancy agreements: Tenancy agreements are an annoying but necessary part of being a tenant. They protect both the tenant and landlord. However, it is the landlord who will ultimately determine if the lease is for fixed or periodic tenancy. Being bound to a property for a fixed term and liable for rent if you find a more suitable property before your lease expires means that people cannot move unless they can afford to service two rental properties. Fixed term arrangements are intended to provide certainty, but they don’t they minimise the choices a renter can make.

 

Power to the tenants

rental policy

Requiring the letting fee to be payable by the Landlord not the tenant

One means of giving power back to tenants would be to amend the Residential Tenancies Act 1986 to require landlords to pay the letting fee not the tenant. See the Tenancy Tribunal website.

The work done by the letting agent, is for the benefit of the landlord. It is grossly unfair. A tenant should not have to pay a fee that deals with administrating a property that they do not own, for work that was undertaken prior to them obtaining quiet enjoyment of the property.  Landlords should not be allowed to pass on administrative costs to tenants. If they don’t want to advertise the property themselves, then that is their choice, not the tenants choice.

Implementing a rent cap and a star rating for rental properties

Like others, I have been thinking about the viability of rent cap, and the idea of a star rating for rental properties was brought to my attention in the weekend. Restricting the price and developing a robust rental property criterion gives rights back to tenants who spend a large proportion of their incomes paying rent, or in many cases, someone’s mortgage.

We know that rent is just too high and even those on good incomes are finding rentals increasingly unaffordable. While Christchurch is reported to be experiencing a reduction in rent prices, with some landlords offering a week’s free rent, Auckland and other parts of the country are ridiculously expensive and there are no signs of cooling off.

A rent cap could provide the right lever to keep people in homes that are affordable, and combined with a star rating could incentivise landlords to maintain and repair rental properties thereby improving the quality of homes in the rental market. It could be either a temporary or a permanent measure. It could include provisions for market or inflation adjustment.

I’m not going to speculate here about what the rent cap should be. However, the process might involve a price band where rental values are based on the star rating they receive from an independent property assessor.

The star rating could align with the housing Warrant of Fitness (WOF) standards. For example, a home that fully complied would receive a 5 star rating and be able to charge rent at the top end of the band. A property that only complied with part of the WOF standards and received a 1 star rating would only be able to charge at the lower end of the band. This would also give tenants an ability to negotiate the rent required to tenant the property.

I note that price bands should vary depending on location, and that should be a factor in establishing the price bands.

A groundrent for despicable landlords

A property that did not meet any WOF standards, could be deemed uninhabitable. If the landlord refused to meet those standards and left the property vacant, then the government could apply a groundrent to cover the social cost of taking a property out of the market. Doing so could help bring about stability, by ensuring vacant properties were not used to create an artificial scarcity that drives up house prices.  The intention would be to disincentivise landlords from simply land banking and encourage them to either repair the property to WOF standard, or sell it.

We need a real world solution for a real world problem not an ideological driven rant that narrows the field of investigation and subdues innovation.

Unseating Labour

By Ellipsister (Co-ed.)

If you had asked me last week whether the Māori Party could unseat the Labour Party in the Hauraki-Waikato electorate at the next general election in 2017, I’d have given a simple “No”. However, the election of Tukoroirangi Morgan as the new President of the Māori Party brings with it the potential for a new alliance with the Kiingitanga and the capacity to unseat Labour.

Although reported to be apolitical, there are certain advantages a political alliance could offer the Kiingitanga given politics is our primary vehicle for influencing policy that affects our people at the central government level.

There is no question that Nanaia Mahuta has served her constituents and her Kiingitanga whānau respectably as the Hauraki-Waikato electorate MP for the Labour Party. However, the contest will not be between the candidates who stand in the seats. The real contest will be behind closed doors, between Labour and the Māori Party. The outcome dependent on which of them can secure the support and influence of King Tuheitia.

It presents an awkward scenario for Labour given at the last reshuffle, Labour dropped Nanaia down the party list, despite her fierce leadership in securing 6 of the 7 Māori seats for the Labour Party and the loyalty the Kiingitanga have implicitly shown Labour in re-electing Nanaia for almost 20 years. In contrast, the Māori Party whose new President is also the trusted ear of the King will push hard for that support. If the Māori Party are successful, this could mean a seat that has resided with Labour for almost 20 years, could now hang in the balance. In TV terms, it is quite the game of thrones, of sorts.

The power of the Hillary Clinton promo vid

By Ellipsister (Co-Ed.)

Too often, we conceive of politics as the realm of adults. We think that somehow children are isolated from the narratives and juvenile behaviour of our aspiring or actual political representatives. The promo vid from the Hillary Clinton campaign (below) is incredibly powerful and serves as a sobering but clever reminder of how political tropes and uncensored diatribes can, as political scientist Bronwyn Hayward tweeted, have a legacy or morality impact for our children.

 

 

 

 

 

Brexit: I teeter between the two, landing for the most part on “leave”

By Ellipsister (Ed.)

The proliferation of reckons on Brexit espouse a range of views and angles. Some speak of the collapse of opportunity for future generations, others to a xenophobic tornado tearing through the neighbourhoods of the white working class. Others despair about the stupidity of a particular class of voters, or the youth who did not care enough to vote, while some focus their analyses on the economic damage Brexit could wreak on a global scale. Others romanticise about the liberation of the people from their oppressor, while others bemoan their lost freedom of movement.

Beneath the surface noise there is, however, real opportunity to deconstruct the issues and begin to formulate a deeper understanding about:

  • the conditions that trigger mass action in contemporary societies;
  • social division within mass actions; and
  • the risks, opportunities, implications and consequences that arise through referendum

This post does not cover those points specifically, but simply points out that there are always learning opportunities, no matter what the situation is in which they arise.

Part of the purpose for this special edition  was to see what some of our writers thought about Brexit and to get closer to seeing what we could learn – and perhaps even un-learn from Brexit and its associated campaigns, and to discern how we might ensure that humanity and empathy remain core components of our global social fabric.

Over the past week, I have seen a division here in NZ. A good proportion of Māori supporting the leave campaign, and a good proportion opposing it. Within that matrix, there were racists, there were separatists, and there were genuinely held beliefs about the importance of tino rangatiratanga – no matter who was exercising it.  There were ‘bounded freedom’ champions, freedom of movement advocates, those disgruntled that their newly acquired British passports would no longer be fit for purpose, there were those genuinely concerned about the harm the leave campaign would do to non-white immigrants currently resident in the UK, others concerned about trade and economics.

Where do I sit? I teeter between the two, landing for the most part on “leave”. I intensely abhor the sickening levels of hate and violence that gripped the “leave” campaign. I also convulse somewhat at the mischaracterisations of the EU that attempt to sell a story of a loving Nanny gently caressing her independent nation-states in her ever-loving arms. I refer to these as the neo-TINA’s –  deceptively wedded to the idea that we must concentrate wealth and power.

I support the right of any peoples to self-determination. To determine for themselves what laws or customs they want to govern their country and who will interpret those laws.  My views undoubtedly relate to my commitment to tino rangatiratanga for Māori here in Aotearoa New Zealand. But I need to make this very clear –my support for leave – on principle, is not informed by that hideous campaign of hate and violence. It is tied to my own nostalgia for the rightful return of Māori sovereignty.

I had to ask myself the question: How could I, in principle, support “remain”, when I would 100 percent support an opportunity for Māori to exit from a system that does not serve us well? And no I do not argue for total isolation, or the building of fences, or the expulsion of immigrants, or a return to pre-contact Aotearoa. I argue for the guaranteed right of tino rangatiratanga expressed in Te Tiriti o Waitangi to be formally recognised. To enable Māori the right to choose to exit from the laws that constrain our tikanga and those laws that continue to incarcerate, abuse, and dispossess our people. And as a friend recently said to me, ‘if there is a Union Jack on the flag that symbolises the country I live in, then yes, I do get to have an opinion about Brexit’. That’s not to say you have to like it.

Brexit: Are you Listening

By Nicola Eccleton

In some ways this whole Brexit thing is a bit of a relief really. I had begun to think that those who are not used to having a voice had stopped even trying to use it. The fact that such an important vote was used as a means to reject the establishment rather than determine whether membership of the European Union was useful is a bit of a fly in the ointment, but you can’t win them all.

What bothers me most is the condescension with which people are talking about those who voted leave – writing many off as racists whose vote is somehow less worthy than their own. If that’s what you think, you’re not listening. We all know that anti-immigrant, racist rhetoric thrives in situations where people are disaffected, disillusioned with the system, struggling to raise their kids and pay their rent. We know that the tendency towards looking inwards is a coping mechanism, and that a genuinely outward looking worldview is the purview of those who are lucky enough not to have to fight their own fires on a daily basis.

I read that the single biggest indicator of a leave vote was a low level of education. You don’t need to be a rocket scientist to work out that democracy and low education do not function well together. Decision-making 101 requires that people who are asked to make decisions have the information required to do so. The reality that higher education in the West is much easier to attain for those with money allows the wealthy elite to strengthen their claim to being the legitimate holders of decision-making power.

As a student of politics I am fascinated by Brexit’s implications for multilateralism, the Northern Irish border and the Scottish independence movement. As someone who has spent much of their career working with people for whom the current system does not work, I despair that the sum total of the negative outcomes of such a decision will be placed squarely on the shoulders of those UK citizens who can least afford to be negatively affected.

This concentration of power, and ultimately wealth, is currently shaping politics throughout the Western World. Those who are looking to provide an alternative model of politics in the 21st Century need to come up with a version that not only speaks to those who are disaffected by the current system, but genuinely serves them.

The blame lies with those of us who continue to vote for parties and policies that convince us that labour market flexibility is more important than high employment, that education is a private good with solely individual rewards rather than a public good on which our entire system is contingent, and that those who are not well served by this system can ‘choose’ different outcomes. For these are the conditions under which we create space for those that play into the fears and insecurities of the disenfranchised, the Trumps and Farages who reiterate that the system doesn’t work and give people someone to blame.

And if you think that’s not what’s happening here, you’re not listening.

 

Brexit and The Hammerhead Sharks

By Andrew Chen

On Saturday I attended a BWB Conversations event with the author of Being Chinese: A New Zealander’s Story” Helene Wong and film-maker Roseanne Liang. Amongst discussion about what it means to be a Chinese-New Zealander, assimilation and integration of immigrants, and speaking out against microaggressions, there was one narrative that struck a chord with me. When asked about how we can build better connections between minority groups and with the majority Pakeha, Helene said that the key was for people to interact with each other and work together. Just talking to each other can be enough to humanise each other, to overcome an innate human distrust of the different, to see that we are all humans first and white or black or brown or yellow or red second.

In the wake of Brexit, this is very relevant and important. An ugly xenophobic racist streak has reared its head in recent months in the UK and US, and while it has always existed in the undercurrent, that dangerous mentality has captured enough people to achieve material change. Many commentators have said that the Remain campaign failed to strike an emotional chord with the populace, that experts were successfully characterised as elitist by the Leave campaign, that the Leave campaign were able to build a better narrative that went beyond rationality and spoke to the electorate.

Perhaps there is something to be said about how the Remain campaign actually communicated with people. Did they rely on mass media advertising and debates trying to be efficient, reaching many people at once, or did they actually go into the communities and talk in person, reaching only a few people or only one person at once? I understand that talking to small groups of people is expensive, in that political campaigning costs time and money and both of these are only available in limited quantities. But there is something about a one-hour debate on television that becomes inaccessible for the disadvantaged and disenfranchised.

There are lessons to be learnt from Brexit as the sentiment expressed by the Leave voters sweeps across the rest of Europe, across the United States, and even down in little old New Zealand. We’re going to see increasing interest from immigrants and refugees because we are damn lucky to be living in a pretty great country. How we deal with that speaks about who we are as a country, whether we are a country that welcomes people with open arms and gives everyone a fair go, or a country that prejudges people who look and sound different to the rest of us and puts policies in place to keep them out. We have seen from our politicians, from all sides of the spectrum, that our country may be heading down the second path.

There is a common tendency for social progressives to just shut out those who don’t agree. Everyone has a story of how they tried to call someone out on being racist or sexist or homophobic or otherwise offensive and had it backfire miserably. We learn from these experiences and argue that there are some people whose opinions cannot be changed and in the interests of our own mental welfare we should not bother to engage with them. Never read the comments is a common mantra, but that only allows the ill-informed, the misguided, and the offensive to continue perpetuating their views. We cannot keep shouting from our ivory towers, hope that the media amplify those voices, and then hope for that to equate to real change. The message has to be taken to the people, not projected at the people. It is not enough to just call them uneducated, uncultured, or impoverished and to just ignore them.

That means we have to get out of our echo chambers and go to where these other people are. We have to comment on the Herald’s posts on Facebook and the Stuff comment threads, we have to physically visit community groups and iwi, and we have to argue with our racist uncles at family dinners. That’s where “the other people” are, the ones who vote and happen to be in the majority. We have to go out of our way to say “that’s not okay” and seek to educate people. It’s not easy. It takes a lot of effort and pain, but it’s what we have to do to move away from the path we are on. It’s not something that we can just leave to the political parties or academic experts or business leaders. It’s not enough to just hope that those views will phase out over time; we need to give that change a nudge.

Helene Wong said two things in particular that resonated strongly with me. The first was a metaphor: that in our society now Pakeha are the sky and the minorities are the clouds. There are many clouds, of different shapes and sizes, but they only exist against the aerial landscape of the majority. We should strive to live in a society where we are all clouds, Pakeha included, co-operating and co-existing amongst a common sky. The second thing she said was that we have to be brave. I believe we have to speak up, and cannot just be apathetic, because apathy is what leads to the strengthening of existing power structures until they can no longer be fixed.

Kaua e mate wheke mate ururoa. Do not give up; no matter how hard the struggle is, keep fighting.