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.