A radical idea for low income housing in New Zealand

There has quite rightly been a storm of criticism of the Labour Government’s Kiwibuild initiative in the last couple of weeks. While it may be true that the policy was never intended for low income households, the PR promotion of a couple as early beneficiaries of the scheme, likely earning significantly above the median household income, rubbed salt into the wounds of those middle class now regarded as the working poor, earning a decent income but still well short of being able to afford a house in New Zealand’s extremely unaffordable property market. Squeezed by high and rising rents that make saving a large deposit quickly enough impossible, and likely debt servicing costs on a gargantuan mortgage that would stress their weekly finances, even at historically low interest rates, what are households earning $100-120k meant to do, let alone all those households earning less than the median of $85k?

Not only is Kiwibuild unaffordable for most of the households who desperately need a warm, dry place to live; it is a market based response to a market failure and trying to perpetuate a housing bubble that has badly distorted the New Zealand economy. Should the Government be encouraging people to buy into Auckland’s property market at the moment when median prices are (depending where you live)  8.5-10 times median household income?

In some of the regions things have also deteriorated rapidly. For instance in Napier where I live, the rapid increase in house prices in the last 2 years, due to Aucklanders relocating or looking for cheaper “investments”, has pushed the multiple out from 4.4 to 6.1. Many locals can no longer afford a home where they grew up. Increased rental demand and increased investor demand has meant rental prices have also shot up. Labour’s answer is state housing, not only for beneficiaries and very low income households, but also for a large group of middle income households, $50-100k, that were core owner occupiers and anchor a community. There is also talk of shared equity schemes but again these are at existing nosebleed prices.

So what could be a radical option?

For a start the “market” has failed, and failed abysmally. It needs to be circumvented. Personally I believe that New Zealand house prices, like many parts of the world, are indicative of a speculative mania, animal spirits funded by reckless bank credit creation & squeezed even higher by immigration, foreign buyers & planning restrictions. That said, it should be left to go bust in its own time. Buyer beware!

A sub market needs to be created by the government for low income/first home buyers. The government should tap their bank, the RBNZ, for low or even zero interest mortgages. It should also use RBNZ funding to design and build modest, warm, energy efficient 2-4 bedroom homes of 80-120m2. There is the option to work with private sector (as Labour did with Fletchers in 1930’s) Government money could also fund factories building standardised components. No expensive extras. It should have low income/first home as well as zero capital gain covenants ie can only be on sold to a like buyer and have no speculative value. Buyers can build equity for open market properties or stay for life.

The key to making them affordable, around $200-250k, is the government using the legislative sledgehammer it has at its disposal. The Public Works Act. This needs to be used to compulsorily purchase land off land bankers on urban fringes, at undeveloped prices, and subsume the cost of infrastructure development and consenting. There are also large tracts of land already owned by the government, like Hobsonville Point was or the Unitec grounds, that don’t need to be “sold” at open market prices. It can assign any value it likes. It is just book keeping entries.

Iwi should also be pressured to come to the party with favourable leasehold arrangements for their whanau. Iwi provides the land below open market rates and the government will fund the house. This could be enhanced by a Job Guarantee, whereby those who want to move back to their Iwi area can do so knowing they will have a local job as well as a new home. Indeed the first goal of a Job Guarantee could be to assist in the building of Iwi housing, much as NGO’s like Habitat for Humanity do, with unskilled supervised by trained builders. Many small communities could be revived by this process.

There will be those like Judith Collins who will claim this is building ghettos or hotbeds of criminality. There is always that potential where poverty and unemployment exists. But a community where everyone is guaranteed a job, even at minimum wage, and where they have the household means to pay off a low mortgage, will be far less likely to ferment criminal behaviour.

There will also be those who will be petrified that a sub market will affect their house prices. It may very well make it uneconomic for some landlords to remain in business. Slum lords in particular will run out of tenants. But not everyone will want to live in a house of modest design or located in certain suburbs or regions. Some people prefer the freedom of renting or really want to be in a certain area. There will always be demand for the open market. Indeed building equity from day one, even without capital gains, will put many people on the right track to open market ownership. Perhaps without the nose bleed prices. The most important thing is to get people adequately housed with a rent or mortgage they can afford, a stable job and a stake in their community.



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  2. The fundamental problem is not really “affordability” of basic healthy green housing, it is that the primary family house owning sector should not be a market in the first place. Housing needs to be decommodified and seen, like school and healthcare, as a basic human right. The secondary housing market and corporate building sector is ideal for operating as a market on the other hand. The rental housing sector though (if someone is renting a second or third home, or using AirBnB) needs to be taxed like sh_t. Rentiers’ are the most unproductive income earners possible (other than the unemployed), they need to be taxed to near oblivion. And it should be illegal to speculate on family real estate zoned house prices. When you come at these “affordability” issues from a primarily economist/accounting perspective, you lose the more fundamental humanity of it all. For a government running a sovereign fiat currency providing state housing should be a no-brainer, in fact quite luxurious energy efficient, small area, green energy supplied houses are easily affordable, state housing that is cheap and nasty is a choice, not an inevitability – the wrong choice. Rebuilding Christchurch could have been easily done by raising the NZ deficit by a trivial amount, with zero cost to the future (in fact a net investment) and with zero risk of inflation. Why is our government so stingy? Because they do not understand monetary economic dynamics. Earthquake proofing sub-standard houses in Wellington should also be done by using the government deficit, both as investment and as humanitarian right. If there is a massive earthquake in Wellington with loss of life in these buildings then that’s a choice the government has made, to lose lives – the wrong choice.

  3. […] towards direct government provision of infrastructure that has previously been subbed out or a massive new state or low income housing programme ie by a reconstituted Ministry of […]

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