How to fix the housing crisis

OPINION: The latest round of denunciations around house prices, involving the Minister of Finance and the Governor of the Reserve Bank, shows how serious it is. Add in the banks, city councils, and social agencies, and the housing issue looks like a heavyweight wrestling match.

However, all these disputes detract from the real issue, how to control house prices in the long run.

First of all, let us be grateful for a high quality problem. New Zealand is in a much better economic situation than many of our peer countries. And we are effectively Covid-free, thanks to excellent decision-making and our team of five million.

With all the economic stimulus, economists should have spotted the house price boom. You just can’t have that much money hanging around, with such low interest rates, without it happening. One economist said they are making the weather forecasters look good right now, and he’s right.

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Let’s be clear. No single person or institution is responsible for the recent rise in home prices. Housing is a huge and very complex problem, and any solution it involves must involve the government, reserve bank, municipalities, individuals, Iwi and investors.

Home prices are very sensitive to interest rates, which have been on a downward trend for decades. But the historically low interest rates are not just the Reserve bank’s fault. It is a global phenomenon and we are a globally connected economy.

And much of the long-term decline in interest rates is due to technology. Ask any retailer that competes with online websites. They cannot raise prices, which means little or no inflation.

And as our population increases, so does the demand for housing. That creates problems for city councils in providing land, public services and transportation.

And banks can’t resist making home loans, because it’s so profitable.

And let’s not forget that many do not want any taxes on investment homes. As a people, we love making money from houses.

So let’s start by accepting that many things, and many people, have contributed to home prices being so high. No one is the only one to blame.

So how do we approach the current problem? The key is to look at the houses like any other merchandise. It’s about basic supply and demand. As with milk prices, the cost is reduced only when the long-term supply increases significantly.

Trying to influence the demand for housing does not solve the problem, because everyone needs a place to live. As our population increases, the increase in the demand for housing is a fact.

In Auckland alone, the 2018 housing shortage was estimated at a low of 28,000 homes. And because nationwide at least 14,000 homes are demolished or collapsed every year, we need to build that many annually just to stand still.

The simple truth is that as long as there is a shortage of houses, prices will remain high and can continue to rise.

So how can we increase the supply? The central government is key, but many must play their part.

The Reserve Bank can help by keeping interest rates stable and low, and by requiring banks to lend sensibly, even to the companies that will build the homes. Banks in New Zealand are really just home finance companies, and the Reserve Bank needs to keep its animal instincts in check for ever larger profits.

Local and central government can remove unnecessary barriers to land provision and consent. And the consent process shouldn’t be a great source of income for councils. Better to have more houses built, with rates that provide the income.

And the government has to keep building many more houses. He needs to lick his KiwiBuild wounds, get over it, and do better this time. As Churchill said, “when the going gets tough, keep going.”

We have been here before. The Liberal Government launched the Workers’ Housing Act in 1905 to address chronic housing shortages and poor quality. The Labor government began building state houses in 1936, with the first being completed a year later at 12 Fife Lane, Miramar. Symbolically, Michael Joseph Savage, the then Prime Minister, himself carried the dining room table through the door. In 1978 the 100,000th state house was completed.

The story gives us a simple message here. A growing population needed homes and the government stepped in to build them in volume. And they were very well built. A premium is paid for old state houses, for good reason.

The government has enormous advantages in building to scale. He can make laws and he has the money. Therefore, you must continue with the work. If not, your home’s affordability could decide the next choice and the next.

And there is an unfortunate double whammy for the government with housing affordability. Unless it is resolved, child poverty will struggle to improve. An excellent 2018 study, ‘A Stocktaking of New Zealand Housing’, summarizes the social costs of poor quality and supply of housing. Children change schools too often, illnesses in poorly insulated homes, retirees dependent on short-term rents, the costs of housing insecurity are a list of misery for young and old.

If the Prime Minister really wants to tackle child poverty, the safety and quality of housing must be a top priority. Housing is a basic human right and is increasingly being denied to many. Previous Labor governments have understood this, and this one should too.

It is simple. The only way to truly solve the long-term housing crisis is to build more houses. It is difficult to do, but that is no excuse. We’ve done it before, so let’s do it again. In addition to your love and compassion, the government needs to carry concrete and cranes.

Sam Stubbs is the founder of the KiwiSaver Simplicity provider.