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Making Housing Affordable: Myths and misconceptions?

Making Housing Affordable: Myths and misconceptions?
Alison McCulloch

Forget everything you think you know about housing, because it’s probably wrong. Everything, that is, except that we have a problem, and that if you’re among the 65 percent of New Zealanders who own a house (or houses), you’re part of it.

Why? Because making housing “affordable” doesn’t just mean making someone else’s house “affordable”, it means making yours affordable, too. And that means lowering its value. It’s obvious when you think about it, but it’s a solution no home owner wants to embrace, which means it’s a solution no politician wants to propose.

But, as Prof. John Tookey of AUT makes clear in his unflinching paper “The Mess We’re In”, if we don’t face the hard facts and make the hard decisions, we’re in for more of the human misery that comes with homelessness and a world of economic pain when the much-discussed housing bubble comes to an end.

If you’re already shaking your head in hurt or disagreement, (“there is no bubble”, “lowering values isn’t the answer”, “It’s not me, it’s ----”, “rubbish!”), you’ve hit on another part of the problem: so many slippery facts and anecdotes and media spin and scapegoats and misconceptions; so little agreement, or unity, or will.

Rather than spend too much time lost in the weeds of policy tweaks around rent subsidies or taxes, or foreign ownership, or red-tape cutting, or Special Housing Areas, this short introductory article take a wide-angled snapshot of “affordability”, starting with Tookey, followed by some links (briefly summarised) to further reading, for when you have the time and the stomach.

Myths and Misconceptions

As Tookey sees it, most of us are pretty ignorant when it comes to understanding why we’re in “the mess we're in”, and his paper sets out to bust some of the persistent myths that surround New Zealand’s housing crisis.

We’re not going to detail them all in this space — you can read the original for that — but here are a couple to chew on before you weigh in (and please note, these are not Tookey’s words, so any errors in interpretation are not his):

Property speculators are us. Housing is a human need, but that’s not how we treat it. In our free-market capitalist economy, it’s traded as a scarce commodity, and priced accordingly (which also means it’s not priced according to the cost of production).

Limiting immigration and foreign ownership won’t make housing affordable. There are more than enough domestic buyers eager to make a profit or just get on the property ladder to keep prices up, especially since housing offers investors the best returns around.

This is not a supply-demand mismatch. We actually have enough dwellings for the population, just not enough for a population using housing to make money.

Simply opening up more land and cutting regulations won’t make housing affordable, either. There are lots of reasons for this, including that we (and the market and the construction industry) prefer big houses on big lots. If it’s left to the market, builders and developers won’t build smaller cheaper houses. Why would they? And why should they?

If only we could improve the productivity in the construction sector! No again! Sure, productivity is an input that helps builders with their margins (as is land), but it doesn’t necessarily affect affordability. (See “housing as a scare commodity”.)

— Which means, it’s just plain wrong to think house prices equal the cost of the land plus the cost of building the house. Which means solutions based on that belief won’t work.

We Need Intervention
Is there another way? Yes, but it’s not going to come from “free market capitalism”. It’s going to require compulsion, (or manipulation, if you prefer) like tax incentives to build affordable housing; tax disincentives to use housing as a profit-making investment opportunity; and a sizable housing stock that’s outside the free-market, simply put, state housing: State built. State owned. Plus the guts to ignore all the Nimby’s who love the idea of state housing and affordable housing so long as doesn’t affect them — or their propertly values.

Given this is housing, there are as many theories of the causes and solutions as there are houses (of which, Tookey says, Auckland has around 500,000, currently worth around $450 billion!). Here are some other ideas:

More Reading:

The New Zealand Initiative
https://nzinitiative.org.nz/research/housing/
The NZ Initiative focuses on incentivising local authorities to develop land (including, of course, infrastructure) for housing (carrots not sticks).

The New Zealand Productivity Commission
http://www.productivity.govt.nz/inquiry-content/2682?stage=4
Free up more land, cut regulation, encourage developer-friendly local government plans.

An OECD Snapshot of NZ Housing
http://www.oecdbetterlifeindex.org/topics/housing/
For example, did you know the average home in NZ has 2.4 rooms per person? The OECD average is 1.8 making us No. 3 for big houses! You probably did know that we spend more of our incomes on housing than most everyone else in the OECD.

Salvation Army: ‘Give Me Shelter’ report
http://www.salvationarmy.org.nz/research-media/social-policy-and-parliamentary-unit/reports/give-me-shelter
We need a guiding philosophy and a discussion of housing policy: how important to society good social housing is and how to assess and meet housing needs. This report, (from 2013) doesn’t focus on specific policy recommendations.

Morgan Foundation:
http://morganfoundation.org.nz/?s=Housing
It’s time to get rid of policies that discriminate against productive investment in favour of housing speculation. (And lots of other articles.)

Election 2017: Clash between home owners and generation rent looms
by Graham Squires (Stuff)
http://www.stuff.co.nz/national/politics/opinion/92907277/Election-2017-Clash-between-home-owners-and-generation-rent-looms
This article, a bit like the one you’ve just read (we hope), offers an overview of the problem, touching on some of the issues Tookey raises, but also includes a helpful summary of the policies of the main political parties. (So we don’t have to!)

Subdued houses prices likely to lead to complacency
by David Hargreaves (Interest.co.nz)
http://bit.ly/2rh3enN
He agrees with many others that, for example, tax policies are encouraging ‘housing as an investment’, and also discusses Auckland’s inability to respond to shortage and home-buyers’ willingness to put themselves at financial risk to buy a house.

The only way is up if Wellington wants to solve its housing crisis, says report
by Collette Devlin and Matt Stewart (Stuff)
http://bit.ly/2rqhJUP
The headline sums it up pretty well. But this article also points out we’re all Nimby’s at heart when it comes to high-density housing: great idea, for someone else, if it won’t block my sun and lower my property value.

Bernard Hickey
He’s written a lot about housing! (at Newsroom and elsewhere), and here are two offerings:
National vs Labour-Green: housing debate intensifies
https://www.newsroom.co.nz/2017/05/23/30345/housing-auckland about the election-year politics of housing. Bottom line: this is definitely an election issue.

Inside the Gordian knot of Auckland’s housing supply
https://www.newsroom.co.nz/@boardroom/2017/03/13/8542/inside-the-gordian-knot-of-auckland-housing-supply in which, contra Tookey, Hickey argues the demand-supply mismatch is because of a shortage of land, with the Resource Management Act partly to blame. Then there’s land banking, nervous banks, the risk of interest rate rises and, and, and… A Gordian knot, for sure.

The Spinoff
Lots of good work here, too. Including, just for starters:
How to buy your first house: a deep data dive into those miracle property stories
by Chris McDowall
https://thespinoff.co.nz/media/20-04-2017/how-to-buy-your-first-house-a-deep-data-dive-into-those-miracle-property-stories/
All about how those MSM stories about plucky first-time buyers are very misleading, and create both distress and false expectations. Scroll to the end of McDowall’s piece for more housing-related articles.

Housing choices : rational and compassionate?
Want an easy-to-read diagram outlining different housing policies and which ones work, from a 2010 article by Alexander Davidson? Click here:
https://twitter.com/DrJessBerentson/status/864680035067625473

That Davidson article, if you’re interested, is “Alternative Models of Social Housing: Tenure Patterns and Cost-renting in New Zealand and Sweden.”
http://www.tandfonline.com/doi/abs/10.1080/02673039982722

RNZ on AUT report by Brian Easton
Houses would cost half as much if prices stayed somewhere near Consumer Price Index inflation, as they did for 40 years before 2001, with prices rising about 12.4 percent more than the CPI each year. (4 June 2017)
http://www.radionz.co.nz/news/national/332262/house-prices-far-outstripping-cpi-report
https://thepolicyobservatory.aut.ac.nz/publications/housing-prices-relative-to-consumer-prices

Myriad other groups work on housing issues, including:
Community Housing Aotearoa: http://communityhousing.org.nz/
Auckland Action Against Poverty: http://www.aaap.org.nz/
Local Government New Zealand: http://www.lgnz.co.nz/
Closing the Gap: http://www.closingthegap.org.nz/

(more, I know it….)


To take part in Scoop’s Hivemind project on Making Housing Affordable: Let’s crack it.
http://www.scoop.co.nz/stories/HL1706/S00034/making-housing-affordable-lets-crack-it.htm

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