Looming clash between home owners and renters

Talk of a housing ‘crisis’ tends to focus on an increasing number of people not being able to afford good quality, affordable housing.

By Associate Professor Graham Squires

The National government has just announced it will build 34,000 social and affordable houses in Auckland over the next decade, and Andrew Little focused his speech at the recent Labour Congress entirely on housing. So, there is no doubt it is shaping up as one of the key issues for the 2017 general election.

Talk of a housing ‘crisis’ tends to focus on an increasing number of people not being able to afford good quality, affordable housing – whether through owner-occupation, private renting or social renting. Affordability problems ring true for New Zealand, but it needs to be put into global perspective. New Zealand is not the only country facing a housing ‘crisis’.

By looking at the bigger picture you could argue that party claims on housing deal more with the effect than the cause. House prices in global cities have certainly been on the rise, and Auckland is just one example of this.

There are several definitions of affordability but, in general terms, we are looking at the imbalance of housing capital and income. So what is causing this imbalance? The weight and scale is certainly on the side of housing capital – there is an incentive for residents to accumulate wealth and we also see cities becoming spaces of capital accumulation. In global cities space has become commodified and valued, then used to lever more returns on investment.

Associate Professor Graham Squires.

Impact of immigration requires more research

An ‘Economics 101’ explanation – that there is a simple mismatch of housing supply and demand – is often put forward. This under-supply argument states there are not enough houses for the number of people demanding them, resulting in over-inflated prices. Attention then turns to releasing land supply constrained by the planners and land-bankers.

And what about the role of interest rates in house price inflation and affordability? Continued low interest rates enable buyers to own property more cheaply, but low interest rates can work against affordability by inflating prices when demand for housing is high.

Meanwhile, monetary constraints that reduce access to credit, such as rules around loan-to-value ratios, can dampen prices. But they can also pull up the drawbridge by making deposits unattainable for first time buyers or those wishing to access higher priced properties.

Immigration is the unmeasured, politically-sensitive issue around housing pressure. There are claims that Chinese investors and the Chinese economy have had a spillover effect on the New Zealand; others suggest returning Kiwis have added to housing pressures. Net international migration in global cities such as Auckland will inevitably affect demand for, and investment in, housing but there is a need for stronger research on the impact immigration, particularly as analysis often falls as political rhetoric.

Amongst all the doom and gloom for those priced out of the market, optimists are calling for ‘solutions’. For some, the fundamental issue is quality housing – environmental and social considerations should meet absolute quality standards at all price points.

The issue of housing investment needs to be considered here. Credit restrictions on investment properties are a start, but it is questionable whether this adequately deals with all causes – and finance can often find a way around regulatory obstacles. It may take a collective will to be more socially responsible if we are to create affordable housing. At present, affordable housing is an economic domain that does not always consider the problems of exclusion and sustainability of communities.

For the pessimists, solutions are futile – global capital is the natural order and cannot, and should not, be contained. Plus, the damage has already been done. It can be argued that any fall in house prices will not realistically return us to any sensible balance between housing capital and income without some form of major economic crisis.

Renters versus home owners

Here’s a thought experiment that turns the house price and affordability question on its head: Would we be prepared to take a collective fall in house price value? The answer would no doubt depend on our own individual relationship with capital. There are clear winners and losers, depending on personal circumstances and world-view.

Arguably, owners are happy to reap the benefits of asset appreciation and will not make too much political noise. Renters are smaller in number, but growing as a proportion in New Zealand, so permanent renters may start to raise their voice as discontent sets in.

Major party policies

To help you align your own world-view with those of the key political parties, here are the main housing policies – listed by party, in alphabetical order, and in their own words.

Green Party

  • Housing is a social good and a basic right.
  • No one should be prevented from establishing a decent home because of low income.
  • All people should have secure tenure of appropriate housing.
  • Housing developments should optimise land use, reduce car use and be built to sustainable building principles.
  • Energy-saving and resource-conserving technologies must be promoted for all buildings.

Labour Party

Build more affordable houses:

  • Create an Affordable Housing Authority to fast-track development in our cities.
  • Build 100,000 affordable homes across the country.
  • Grow the building workforce.
  • Remove barriers that are stopping Auckland growing up and out.

 Crack down on speculators:

  • Ban foreign speculators from buying existing homes.
  • Tax property speculators who flick houses within five years..
  • Close the tax loophole known as negative gearing that allows speculators to take losses from their rentals and offset that against their personal income.

Support for those in need:

  • Focus Housing New Zealand on helping people, not making a profit.
  • Help 5,100 more Kiwis into emergency housing every year.
  • Require all rental homes to be warm, dry, and healthy.
  • $150m of savings from removing negative gearing for property investors will be invested in grants for home insulation and heating.

Māori Party

The Māori Party has no specific website reference to future housing policy but since the 2014 General Election, the Māori Party has:

  • Advocated for emergency housing.
  • Lobbied for a Warrant of Fitness on all rental properties.
  • Launched the Māori Housing Network, which now has a budget of $17.5 million per annum.
  • Supported iwi and Māori groups that want to provide social housing providers.
  • Supported National's Residential Tenancies Amendment Bill and Labour's Healthy Homes Bill, both of which seek to raise the health and safety standards of rental properties.

National Party

  • Creating special housing areas in high demand areas across New Zealand to fast-track the building of homes.
  • Build 34,000 homes in Auckland over 10 years – 13,500 will be social housing and 20,600 will be sold on the open market, some priced at "affordable" levels.
  • A $1 billion Housing Infrastructure Fund to accelerate new housing in the high-demand areas where it’s needed most. The new fund will focus squarely on financing infrastructure like roads and water needed to support new housing.
  • Setting up independent Urban Development Authorities to speed up housing development in high-demand areas – they’ve proved successful in many other countries.
  • Reforming the Resource Management Act to make it easier for councils and developers to get houses consented and built.
  • Tightened rules to ensure people buying and selling property for profit pay their fair share of tax.
  • Requiring Councils to ensure land supply for housing keeps pace with growth.
  • Passed legislation to restrict Council development charges to reduce the cost of building.

NZ First

  • New Zealand First’s policy recognises that different policy mixes are needed for regions with different problems.
  • Those unable to own their own home must have access to quality and affordable rental accommodation. Existing National Government policy drives rental prices for low income earners up to crippling levels and does not provide for adequate, affordable accommodation in areas of low housing supply.
  • All New Zealanders who are working must have a genuine opportunity to buy their own home.
  • New Zealand First believes that this is only achievable by direct government intervention in New Zealand’s overheated housing market. There is more than enough housing at the top end of incomes and serious shortages at the bottom end.

Graham Squires is an Associate Professor in Property from the Massey Business School and author of the Massey University Home Affordability Report.

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