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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.
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.
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.
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.
Build more affordable houses:
Crack down on speculators:
Support for those in need:
The Māori Party has no specific website reference to future housing policy but since the 2014 General Election, the Māori Party has:
Graham Squires is an Associate Professor in Property from the Massey Business School and author of the Massey University Home Affordability Report.
Created: 25/05/2017 | Last updated: 26/05/2017
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