Housing on Mt Victoria, Wellington, where there’s a fierce debate over the value of greater density. Photo / Mark Mitchell
The cold, hard fact about housing is that neither Labour nor National wants prices to fall.
Prime Minister Jacinda Ardern avoided questions this week about whether that was the goal. National’s leader, Judith Collins,
has done the same.
The reason is this: For those who already own property, this is not a crisis. Provided they can pay their mortgages, it’s an endless golden summer.
Politicians don’t think they’re being cynical about this. They know most people are homeowners, and most homeowners believe their home will never stop gaining in value, so they base their personal financial strategy on that. Your home is your nest egg.
Ardern spelled it out in a media conference last December: Governments have a moral duty not to undermine nest eggs. We don’t elect them to destroy our hopes and dreams.
She was right, we don’t.
A lot of “Mum and Dad” investors have bought more properties for the same reason, with the same expectation.
It’s not hard to spot the problem with this. The 2018 Census revealed home ownership is the lowest it’s been in 70 years: 64.5 per cent. Preserving the hopes and dreams of homeowners means treating a third of the population, and growing, as collateral damage.
To manage this, says Ardern, the goal with property values is “sustained moderation”.
But before this week the economic settings held no promise of moderation. They were soaring in the other direction.
Reserve Bank governor Adrian Orr says it’s not his job to control house prices and just two weeks ago called on politicians to have the courage to tax property owners on their unearned gains.
The Government responded this week, extending the “bright-line test” so that anyone selling a house within 10 years of buying it will be taxed on the profits. Your own home and new builds are exempt.
For residential property, we have, finally, in all but name, a capital gains tax.
There was more. Tax deductibility of landlords’ mortgage interest payments will be phased out. Infrastructure for housing will get a $3.8 billion boost. Kainga Ora, the Crown agency that builds and manages state houses, can borrow $2b more. And limits on grants and loans to help first-home buyers have been raised.
Ardern said they were trying to “tilt the playing field towards first-home buyers”, and “away from the rampant demand from speculators”. Andrew King of the Property Council called it “bizarre” and “crazy”.
Worth a mention here: Landlords will still be able to deduct all their other business expenses. That includes maintenance and repairs, rates, insurance, the costs of getting tenants and of getting rid of them, and fees paid to property managers, lawyers and mortgage lenders.
Most bank economists believe the new tax rules will slow housing inflation. Westpac suggests they could even cause prices to fall.
Whatever happens, the political lines are drawn. There is now a clear difference between the two major parties over property tax. Probably, they both like it that way.
Labour will go into the next election saying the housing crisis demanded a crisis response and it has adopted the best and fairest measures to address it.
National will campaign against the new tax rules. Collins says there are better things to do than pick on “Mum and Dad” investors and the new plan won’t work anyway.
“By removing interest deductions and doubling the bright-line test, fewer houses will be built, fewer houses will be available for rent, rents will increase, and more kids will grow up in motels,” she said on Tuesday.
Time will tell. What’s clear is that the favoured status of residential property investment has been addressed. That was essential.
If Collins is right about unintended consequences, that will need to be addressed, too.
The sad and sorry story
Let’s not forget what this is about.
A couple of weeks ago in Auckland, a house sold for $755,000 more than it did seven months earlier. In February alone, its value rose by $100,000.
This means if you were hoping to enter that market with a 20 per cent deposit, you should have put away $20,000 last month. Just to maintain the value of your money.
The news is better for the country as a whole: The median increase in house prices is only $50,000 per month. To keep your deposit from sliding backwards, you have to be saving only $10,000 a month.
The average house in New Zealand now costs over $800,000.
House prices in Auckland rose 22 per cent last year and the median price is now $1.1 million. And Auckland is not the epicentre of runaway housing inflation. In Gisborne last year it was 47 per cent.
This year, according to some of the banks, the rate of increase nationally could be 27-30 per cent.
This hurts not just first-home buyers but everyone struggling to put or keep a roof over their heads. Last month a landlord advertised a two-bedroom former motel unit for $770 a week. In Tokoroa.
The poorer you are, the worse the news. Over the past five years, lower-quartile rents rose 25 per cent but corresponding wages rose only half as much.
It hardly needs saying that this hits Māori particularly hard. The most expensive city in New Zealand to rent is now Porirua.
And among our half a million rental properties, most of which are in the private sector, two-thirds are now “assisted rentals”. The Government contributes to the rent.
Unaffordable rents: Why is anyone surprised the waiting list for social housing grows every month? It’s now 22,500. It’s doubled in the past two years.
In Rotorua, there’s an “MSD mile”, where the Ministry of Social Development has 2000 people living in motels. All waiting for a home.
Add all this together – the number of people in assisted rentals, social housing, homes in the community housing sector and transitional housing – and the result is 450,000 households paying for the cost of their home with financial help from the state.
That’s a quarter of all households in New Zealand.
This is a complete failure of the market and of government policies for decades. And it costs us: $3.5b a year, up from $2b just five years ago and still rising sharply.
Most of that money helps with the rent. Very little of it contributes to home ownership or any other long-term social good. It doesn’t build homes or communities, it doesn’t create jobs or boost the construction sector.
It’s not a strategy to fix the housing crisis. It’s simply money spent to avoid what could become catastrophic social collapse.
This is not bad news for everyone. The Salvation Army calls those rent subsidies a scheme to transfer wealth to “Mum and Dad” landlords. Paul Gilberd, who works in the community housing sector, calls it “asset stripping the poor”.
And as CoreLogic reported last week, since Labour was elected in 2017, capital gains on property sales, excluding the family home, have totalled $60.8b. Untaxed.
In the last quarter of 2020 alone, they hit a record $6.7b. All of it untaxed.
The property gap, the wealth gap, the gap between those with the financial and emotional security of home ownership and those without it, is growing. Fast.
What do we do? Two things are desperately needed: Build a lot more houses, quickly; and make them affordable.
And it’s not about just building houses. We have to build connected, functional communities. Good housing is an essential component of how well we meet the larger goals of our social, environmental and economic progress.
This is a crisis. Let’s put it in capital letters. This is a CRISIS.
The new policies announced this week won’t fix it. Not on their own. The Government promises more to come in the Budget on May 20.
The new measures focus on limiting demand, by signalling to investors they should no longer treat housing as a source of free money. The Budget is expected to focus on supply. That means a plan to build, build, build.
Here are five big things that plan will need. All of them should be happening, at scale, now. But they’re not.
1. Build prefabs
At Fletcher Building’s new Clever Core factory in Wiri, they can turn out two houses a day. Trucked onsite, the final assembly can be done in six to 10 weeks.
In fact, according to Fletcher’s Steve Evans, there are “40 to 50” companies that can do this, or contribute to parts of the process, and more will soon join them.
So why aren’t they all doing it?
The Fletcher factory makes prefabricated houses or, as the industry likes to call it, “off-site construction”. It’s geared to making 500 a year, and has an eye on export markets as well as the domestic operation.
The idea relies on homes being “pre-consented” in the factory. The factory can then build at scale, unencumbered by the consenting process.
The Government has always been keen on this approach, but it’s been very slow to arrive.
The biggest problem has been that the regulations governing the sector require a major overhaul. The Government promised but didn’t deliver that last term. Now the job is in the hands of a different minister, Megan Woods, with the mahi still being done by the Ministry of Business, Innovation and Employment (MBIE).
The Government has told it to pull finger. New regulations to enable off-site construction at scale are one of its three priority instructions to MBIE this year.
But that hasn’t been the only roadblock. The building consents division of the Auckland Council has told MBIE it believes offsite pre-consenting will undermine quality.
Council staff argue that for many of the local prefab companies, the business model relies in part on cheap construction in Asia. They say offshore manufacture is harder to control than local and warn of “huge gaps in understanding”.
The fear is real: No council wants to be held accountable for another leaky homes scandal. Local Govt NZ has proposed that its members should lose that liability, but the Government says no.
This is surely a manageable problem. Many Asian countries, with growing populations and fast-rising standards of living, are world leaders in construction.
2. Turn girls into builders
Shortly before Labour took power in 2017, Phil Twyford told a building industry conference that only 10 per cent of companies in the sector had apprentices on their books. The industry wasn’t bothering to see to its own future.
That’s changing now, especially with Covid-response programmes. The Targeted Training and Apprenticeship Fund (TTAF), for example, has had 106,000 enrolments for free trades training since it was introduced in July, a third of them in the construction sector.
Since August, Apprenticeship Boost has helped 10,000 employers keep 21,000 apprentices on the job. “Over 15,000 apprentices commenced in the second half of 2020 compared to nearly 7000 in the second half of 2019,” says Education Minister Chris Hipkins.
But more is needed, and a new focus. The Government’s post-Covid employment and training programmes target men more than women, even though almost three-quarters of all job losses have been among women.
The acute shortage of construction workers offers a perfect chance to redress that. If Rosie the Riveter could build warships in World War II, what exactly is the argument for limiting the role of women in construction? It’s no different from the arguments that used to be applied to lawyers, bankers, doctors and artists.
At that Clever Core prefab factory, they’ve made it easy for everyone: Mechanisation means there’s no heavy lifting, and they have women on the factory floor.
The goal isn’t just to repeat what you see now on every large construction site in the city. Women are there, but their role is often peripheral, literally: They’re looking after footpath safety.
A huge campaign in schools, aimed at girls, to create an army of women construction workers: What an amazing thing that would be, for them and for everyone.
3. Fast track the new planning rules
The new $3.8b fund for infrastructure will help build roads and put pipes under them. Where will the money be spent?
Last year the Government introduced a new National Policy Statement on Urban Development (NPS-UD), obliging councils to rethink their land-use planning, to co-ordinate housing with transport and other services and to integrate economic and environmental goals.
The NPS says councils must “maximise the benefits of intensification”, by making much greater use of medium-rise and multi-unit zoning.
The new $3.8b is supposed to complement this. “We will be leveraging off the NPS,” said Ardern on Tuesday.
“Just so everyone’s clear,” tweeted Auckland councillor Richard Hills, a member of the Labour Party. “That $3.8b needs to go to brownfields housing where the jobs, education, parks, community facilities & public transport is. Sprawl is more expensive for all. It means you may get a slightly cheaper house with far greater travel expenses and emissions.”
“Brownfields” refers to land within urban areas that can be redeveloped for new use. Think the old quarry land in Mt Wellington and Three Kings. “Greenfields”, in contrast, is rural land on the edges of the city. Think new suburbs near the Bombay Hills.
But Hills wasn’t confirming the policy, he was declaring his hopes. As he knows, despite the language of the NPS, the new transport plans announced for Auckland this month put a big focus on Drury, in the far south of the city.
It’s greenfields land, being made ready for 50,000 new houses.
This is a real test for the Government. If the aim of building more homes trumps everything else, that new infrastructure fund will be used to tarseal over the potato fields. It’s easier and cheaper.
But if the NPS commitment to density is real, it will be fast-tracked to ensure most of the money goes to brownfields. This is a tool the Government has to use quickly and well.
“The Government expects local councils to play their part by opening up land and enabling intensification, particularly through the implementation of the NPS,” say the notes about the new fund.
National says it supports fast-tracking the NPS-UD. “The Government should bring this urgent rezoning of land by local authorities forward, and increase the competitiveness margin, to enable intensification and growth,” said housing spokeswoman Nicola Willis in a recent statement.
But National also wants the Auckland Urban Boundary removed, which would make it easier to extend the city into the countryside.
That $3.8b, by the way, is not nearly enough. Kiwibank calls it “minuscule”. The Government could commit a lot more if it was less determined to pay down debt.
Ardern and Finance Minister Grant Robertson both spoke this week about using “all the tools” at their disposal. The NPS-UD and debt haven’t had enough use yet.
4. Support community housing
In November 2019, Ardern launched the Salvation Army’s new 52-unit housing development in Royal Oak. It cost $28m and was built with $4m from the Government. She seemed impressed.
“The Salvation Army were amongst those who recognised the housing crisis before many others did,” she said.
“We should be working together because the [Salvation Army’s] wraparound services go above and beyond what we can provide.”
In practice, says the Salvation Army, the community housing (CH) sector has “never had the full support of Government” and the situation “needs urgent change”.
This week’s announcements, yet again, did nothing for CH.
The sector includes iwi, religious organisations and a range of community housing trusts. They build what they can, usually offering not just housing but the health, budgeting and welfare wraparound services the PM said she admired so much.
They want the Government to provide capital grants and access to government-owned land and development opportunities through Kainga Ora.
This year, Community Finance, which arranges finance for CH projects, has launched the Aotearoa Pledge, a programme to raise $100m to build affordable homes.
It’s a statement of intent, that they’ll go it alone even if the Government won’t provide more funding. Several “leadership” investors are on board, including ANZ and three KiwiSaver providers. They’ve got $71m already committed.
KiwiSaver provider Simplicity tops the list, with a $20m contribution.
“We believe safe, secure housing is a human right,” says Sam Stubbs, Simplicity’s CEO. “We can get Kiwis into safe, secure homes, while making good returns for our members. Who wouldn’t want that?”
James Palmer of Community Finance points to the $77b in KiwiSaver funds today. “If 10 per cent of that could be put towards community housing it would be a game-changer.”
Stubbs: “The capability to build warm, dry, quality homes at scale is easily affordable for these organisations. If they had just 5 per cent of their funds in rental housing, we could already have 15,000 extra homes for rent.”
Palmer likes to use a rugby analogy. All that praise for the Salvation Army? “It’s like announcing you’ve got Richie McCaw in your team, and then leaving him on the bench.”
National agrees the sector should be empowered, using capital from Kainga Ora.
“The Government could make these projects happen immediately,” says Willis, “by releasing some of the taxpayer funding ring-fenced for future social housing.”
Why is the Government so reluctant to help the sector grow? I asked Woods about this last year when she opened a new project in Northcote. She denied she was ignoring the sector, but added that she believes it is the state’s responsibility to build houses.
But couldn’t CH do more to help? Couldn’t iwi and other Māori housing providers like the Waipareira Trust in West Auckland? Many iwi are now working hard to develop papakāinga housing on whenua Māori.
“There has been no ring-fencing of funding for Māori allocated,” says housing researcher and advocate Jacqueline Paul.
5. Rethink the Accommodation Supplement
Equity in housing isn’t just about building more houses and making life a little harder for investors. It’s also about helping people live decently and, for many, to have some hope of home ownership.
The Government’s rental support schemes – the Accommodation Supplement (AS) and Income-Related Rent (IRR) – comprise the bulk of the $3.5b the Government spends each year to help people stay in their homes. But according to the Minister of Housing’s own newly appointed chief science adviser, the economist Kay Saville-Smith, it’s not helping as much as you might think.
Saville-Smith says 142,900 households are classified as having “severe housing affordability stress” because they have to spend more than 50 per cent of their income on housing before they receive the AS. But the supplement is so inadequate, it lifts fewer than 10 per cent of them out of that “severe” category.
Saville-Smith calculates that with a further $3.7b, all households receiving AS would be able to reduce their housing costs to 30 per cent of their incomes. That would see it doing the job it’s supposed to do.
But for many recipients AS needs converting into a rent-to-buy or “progressive home-ownership” scheme. Making welfare not just a handout but a hand up.
It used to happen. Property ownership became a democratic reality in New Zealand in 1959, when the universal family benefit, paid to the mothers of all children, could be capitalised. That’s what allowed so many people to buy their own homes.
Those people were the parents of the boomer generation, who passed the property wealth they accumulated on to their children. That’s what put so many boomers on to the property ladder.
Economist Shamubeel Eaqub says that if even half the $3.5b now spent on rent assistance was converted to progressive home ownership, the change would be immense.
National’s Willis has suggested we need “new finance models”, which is a similar idea applied to new builds. “The Government should work with industry to develop finance models that leverage Accommodation Supplement and Income-Related Rent entitlements to drive new housing development.”
The Ardern Government did allocate $400m to a Progressive Home Ownership scheme in its previous term. The aim was to help 4000 households buy their own home. To date, only 12 households have been helped.
The houses we need
Build, build, build. Community Finance says we’re currently 60,000 to 90,000 homes short of what we need. Kiwibank puts it higher, at 80,000 to 100,000.
In addition, says the business think tank NZ Initiative, even with only moderate immigration we are likely to need a further 26,000 to 35,000 new houses every year. The Salvation Army says it’s more. To replace old stock and meet the demands of population growth, it says, we need 40,000 to 46,000 new houses a year.
But we are making progress.
In Auckland in the year to January 2021, a record 17,113 dwellings were consented: 70 per cent of them were for apartments and other multi-unit dwellings, a quarter within 1500m of a rapid transit corridor. Developers have embraced the demand for density.
Nationally, consents have risen every year for a decade. Last year the figure was 37,000, the second-highest on record.
We’re building more houses than at any time since the 1970s. We’re not making a dent in the backlog, yet. But we’re in the ballpark for 40,000 new homes annually. Fixing this crisis is not an impossible dream.