Gordon Campbell on government’s inadequate housing policy

If the government has an Achilles heel going into this election it is in housing policy, where affordability has become a huge problem for a wide swathe of middle income and low income voters. In a classic “let them eat cake” response on RNZ this morning, Prime Minister John Key even tried to argue that soaring house prices were really a sign of how well the economy was performing under his government.

The reality below the ninth floor of the Beehive is less buoyant. Only the most affluent New Zealanders can be feeling comfortable with the current settings on housing policy. Not only has the OECD found New Zealand to have the least affordable house prices in the developed world in 2013, relative to rents; our house prices are also spectacularly out of sync with our incomes.

In a karmic co-incidence, the OECD survey came out at the very same time that the Budget has chosen to slash the direct grants available to those community organisations that provide social housing to the poor. While subsidies from government have been boosted on one hand…from now on, direct grants have also been cut, such that the likes of the Salvation Army will need to turn more and more to financial markets to borrow the money needed to build affordable homes.

Is there relief in sight? The Reserve Bank has detected some signs of improvement this year, but against a backdrop where more urgent action is plainly needed.

The volume of house sales has dropped considerably across the country, other than in Canterbury, and the slowdown in volume has also been reflected in prices… In Auckland, progress is being made in freeing up the supply of buildable land and improving the consenting process. In Canterbury, the replacement of severely damaged homes is well in train after a slow start. However, the housing shortage remains large and significant increases in building are required in Auckland and Canterbury over the next three years.

The structural problems driving the crisis in housing affordability remain. There is no effective capital gains tax on speculation, while sluggish wage growth and rising income inequality put buyers further and further behind the house price curve and few regulations exist to inhibit speculation by local or foreign investors. Furthermore, given the added pressures from immigration trends, any economy recovery is only likely to kick off another upturn in the cycle. If current policy is maintained, there will be little over the next term of government to take the steam out of New Zealand house prices that, according to the OECD, are 60-70% over valued.

Presumably, this is the kind of social housing development that the government has in mind. As Simon Collins explained in the NZ Herald in February:

Social housing reform is a logical next step after the Key Government's radical welfare changes…An advisory group in April 2010 found the country's 69,000 state houses were not all being used for the most needy tenants because of the "house for life" policy, and recommended reviewing all tenancies to give social housing to "those who need it for the duration of that need".

To reduce the drain on state finances, it suggested leveraging state funding into "third sector" housing by giving community groups the same subsidy that Housing NZ gets to make up the difference between rent, set at 25 per cent of the tenants' income, and market rents. The subsidy, plus their own philanthropic resources, would enable the groups to borrow commercially to lift their share of social housing from 6 per cent to 20 per cent within five years.

So in line with this philosophy, the increased subsidies that the government is paying to community housing agencies (e.g. the Salvation Army, the NZ Housing Foundation) should theoretically enable them to have more certainty about the building work they are taking on. Yet almost paradoxically in the wake of the Budget, there has been a parallel drastic reduction – from around $30 million a year to only $10 million – in the direct grants paid to those agencies to help build new and affordable housing, in unison with the funds they manage to raise from other sources. Evidently, the government is willing to gamble that it can succeed in forcing community housing agencies to borrow from financial markets (rather than relying on direct grants from government) and that this shift will occur without disrupting the current building process for affordable housing. Time will tell if that supreme confidence (or foolhardiness) is justified.

That’s the problem. On housing policy, the government appears prepared to gamble that its ideological preferences will manage to intersect with pressing social need. For now, the government is focussing almost entirely on the supply side of the equation by freeing up land and removing regulatory barriers; and it is assuming that even if demand rises, there will be sufficient new houses coming on stream to keep house prices more or less where they are now. That’s a major gamble with such a basic social need. At best, and even if it does work as claimed, the current sky high prices seem likely to be locked in for a generation, by these kind of policy settings. Surely, the Opposition can do better than this.

Chicago Footwork
The recent death of DJ Rashad, the 34-year-old pioneering force behind footwork (aka juke) music, has belatedly been reported as due to a blood clot, not a drug overdose. The ‘drug paraphernalia” found near his body had to do with marijuana, not hard drugs. The incredibly fast, incessantly repetitive music that Rashad (and his mentor RP Boo) created can hardly be separated from the dance style that shared its name. Footwork is speed dancing, and on first hearing, the music associated with it seem maddeningly repetitive…Yet, to my mind, Rashad’s work had a far wider musical payoff in its own right. So here, to get your Monday morning off to a flying start, is a taste of footwork dancing ; first from footwork’s cultural debut on an old novelty song from 2007 by Dude N Nem called “ Watch My Feet” and then a recent favourite track of mine by the late DJ Rashad, “Let It Go…”

ENDS

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