Tuesday 20 May 2014

Housing The People: Will The Next Labour Government Be As Economically Inventive As The First?

Housing The People: During the 1930s and 1940s New Zealand cities faced a chronic housing shortage. In response the government started a state rental housing scheme, which included building entire suburbs of houses. This is the Hutt Valley suburb of Naenae in 1944. Following the lay of the land, the curving streets were designed to reduce the monotony of straight streets. (Photograph and caption courtesy of Te Ara)

WHICH IS MORE DIFFICULT? Listening to the Prime Minister deny the existence of a housing crisis, or trying to make sense of Phil Twyford’s solution to it? The Organisation for Economic Co-operation and Development’s (OECD) has just ranked New Zealand 34 out of 34 when it comes to the over-valuation of residential property relative to rent and income. According to the OECD, New Zealand house prices, relative to rents, are 70 percent too high.
The Prime Minister will have none of this. Rather than reflecting some sort of crisis, soaring house prices are merely a symptom of the New Zealand housing market’s rude good health. Besides, says John Key, one has only to go on to ‘Trade Me’ to discover plenty of houses priced affordably at around the $NZ300,000 mark.
Twyford’s response to this nonsense began well enough on Radio New Zealand’s Morning Report. New Zealand’s very real housing crisis, he said, was the result of market failure: something which only the State possesses sufficient resources to correct. Labour’s KiwiBuild programme, he said, was pledged to building 100,000 affordable homes in ten years.
If only KiwiBuild meant the New Zealand State buying the land, constructing the houses and then leasing them out at affordable, income-related rentals to young New Zealand families. That, after all, was what the First Labour Government had done. Between 1935 and 1949 entire suburbs had been built by the State. Sturdy, well-designed “state houses”, constructed out of local materials, were erected in the tens-of-thousands.
Orakei, Mt Roskill, Mt Wellington, Panmure, Naenae, Taita, Corstophine – Labour’s commitment to “Housing the People” made as real as the concrete foundations these suburbs’ state houses stood on. In its propaganda for the 1938 General Election Labour quoted the words of Professor A. H. Ryan, of Queen’s University, Belfast, who told an Auckland audience: “I had the good fortune to visit the Orakei housing scheme. I have an extensive knowledge of housing schemes and have visited them all over Europe, and I want to congratulate New Zealand in having the finest housing scheme in the world.”
Sadly, KiwiBuild offers nothing like the First Labour Government’s housing policy. Essentially, it is a Public Private Partnership, in which the State facilitates the private sector’s construction of houses which it will then sell at “affordable” prices ($300,000 to 400,000 in Auckland) to first home buyers.
In other words, Labour is promising to help the sons and daughters of middle-class New Zealand into their first home. Twyford may talk in emotive terms about coming to the aid of people living in garages in South Auckland, but the houses that he, Labour and an army of grateful property developers are proposing to erect are not intended for them. Where are working families on the minimum wage going to find the deposit on a $350,000 house?
The question that rattles around in my head is “Why?” With the noble precedent of Labour’s first great exercise in “Housing the People” still standing on a thousand streets all over the country, what is preventing Twyford from following it? Does it all come down, like so many things the Labour Party would like to do, to a lack of money?
The cost of its housing policy certainly taxed the ingenuity of the First Labour Government. The answer they eventually came up with shocked New Zealand’s Civil Service mandarins to the core.
W.B. (Bill) Sutch, writing in his book The Quest for Security in New Zealand 1840 to 1966, describes the extent of Labour’s political inventiveness:
“To build the houses, credit was created by the Reserve Bank at a rate of 1.25 percent for the first £5 million. John A Lee was made Under-Secretary in Charge of Housing. He accepted on the understanding that money would be available from the Reserve Bank. This procedure was a political victory for those in the Labour Party who wanted to use the financial system to build New Zealand even though such an action might conflict with the banking authorities in New Zealand and in Britain and necessitate a change in ‘free trade’ conceptions. Said Lee later, ‘This was a contentious Party issue. With tens of thousands of men on relief work the Labour Party, Nash and Fraser apart, believed that the funds of the Reserve Bank should be used for essential capital works until available men, machinery and materials were being fully employed. We wanted to undo the politically enforced bankers’ deflation.’”
Can it really be true that the Labour Caucus of 2014 contains no one with the wit and courage of Jack Lee and his colleagues? Is there really no chance that the sort of unorthodox economic thinking that made possible the first great exercise in “Housing the People” will be replicated on Twyford’s watch?
Is there no one in Labour’s ranks who was present and understood what the late Sir Owen Woodhouse was telling them two years ago, on 3 November 2012, at the fortieth anniversary of the election of the Third Labour Government?
Sir Owen was the architect of New Zealand’s world-beating Accident Compensation Scheme. Originally, the scheme had been a pay-as-you-go operation – it’s costs being met out of the levies charged, augmented if necessary from the Consolidated Fund. In the late 1990s, however, in preparation for its eventual privatization, the National Party insisted that the Accident Compensation Corporation become fully-funded. In other words it was required to build up a fund sufficiently large to meet all of its existing and likely future obligations.
According to Sir Owen:
“… ACC has been regarded by some as an insurance scheme under another name. And eventually the need for an income flow was converted from pay-as-you-go to a commercial insurance-type funded system. It is an expensive mistake. For this reason, every year employers and owners of vehicles have been paying much larger amounts than need be in order to build up the large invested funds which now total more than 20 billions. The funded approach should cease in favour of ACC’s annual needs – the system that has always operated for health, education and all general social benefits. By this simple change levies and vehicle charges would be much reduced; they could be averaged across all industries; individual ACC accounts could be amalgamated. And only by this means can the system be extended to sickness as intended by the original report and later outlined as feasible by the Law Commission. It may be asked what of the large fund now in place?”
What indeed?
Sir Owen’s suggestion was that a “sufficient portion should be retained as the necessary contingency against the risk of major disaster with a balance to future levies”.
Well, yes, that would be one solution. But, were a future Labour Government to follow Sir Owen’s advice and revert to a pay-as-you-go ACC, then that $20 billion, or, at the very least, the annual income it generates, could be turned to other purposes.
Like “Housing the People”.
This essay was originally posted on The Daily Blog of Monday, 19 May 2014.


Davo Stevens said...

the "could be turned to other purposes" ain't gunna happen Chris. It would simply disappear into the general fund.

I agree almost entirely with what you are asking about Labour. But I despair that this bunch will do anything really different. They are not prepared to do anything to upset the powers-that-be. Their masters.

Key's comments that the Labour Party gets millions of dollars in funding from the Unions is so untrue that it's laughable. There ain't no Unions left with any clout.

Victor said...


Why would it matter if it all disappeared into the general fund, provided the cost of treatment was then met out of that fund?

The important point is to end the absurd, unjust and perverse distinction between accident-based and non-accident-based disability and illness.

Or is this too simplistic and utopian?

Guerilla Surgeon said...

"Can it really be true that the Labour Caucus of 2014 contains no one with the wit and courage of Jack Lee and his colleagues? "

Simply put - YES.

CarbonGuilty said...

You start off badly disclosing 'wishful' reading of the statistics or economic ignorance. Stick to history where you are at least interesting and often quite novel.
The housing thing from the OECD, an odd European outfit, says our prices are too high because our rents are too low! What the .. ? So we solve this by doubling rents? Great for the battlers that would be I don't think.
Look it's people like Helen Clark who speculate on housing and probably most of the Labour Party still. We capitalists invest in businesses. Better off Labourites like public servants on $250k plus and heavy among the speculators that force up prices with their obsession with houses as the only investment the dare risk. They do not invest in the real economy because of their prejudice and meanness. They hate business and fear loss.
State housing was a socialist nightmare, actually creating poverty clusters which we still suffer from today. Labour farms poverty that way and others. Just like the Greens create environmental problems like AGW by blocking nuclear power and traffic issues by blocking road building. And conservatives? They create voters by making them better off. Which do you prefer?
It's laughable the Labour/Green blend wants to drive down house prices. Good luck with getting voters out for that when most the people who turn out to vote own a house. Even young up and coming renters want house price inflation because they plan to own one soon!

Chris Trotter said...

The OECD "an odd European outfit".

After that, Carbon Guilty, I was reading purely for laughs.

And you didn't disappoint.

CarbonGuilty said...

Yes Chris it was rubbish. I apologise. Badly written too.
But you and Labour have misquoted the OEDC. And yes they do say our rents are too low.
So that is a puzzle. Why does the market provide low rents in relation to capital value? Not very capitalist from your view of capitalism.
My market capitalist answer is that there are not enough ordinary houses to buy and too many for rent. So there is not a shortage of houses, there are too many people like Helen with 6 for rent. She and you others out there who only invest in houses should invest in our economy instead. Be bold! Employ someone! And grow their wages to be able to pay more in rent or actually build or buy a new affordable house. They are available. My neighbour Mike is building 100s of nice houses here in Canterbury including many for about $220k. Very nice houses too, low cost to heat and maintain. His main hurdle is the CC Council, that Labour ridden peoples' (sic, truly sick) palace. They oppose his low cost housing so he has gone to Waimakariri & Selwyn. Ask yourself: why would councils not want low cost housing? Perhaps because the people who work there don't want house prices to stop rising? Makes rating harder too. I would like our current excellent government to take over the CCC as they have Ecan. After all more people in CC voted for the gummit than those councils. So it would be democratic. The screaming would be deafening though so it will not happen, yet.

Guerilla Surgeon said...

Carbon guilty, I shouldn't even bother replying to your ramble, but "State housing was a socialist nightmare, actually creating poverty clusters which we still suffer from today"?
You mean capitalist societies don't produce poverty clusters? You've obviously never been to the U.S. The main difference is that poverty clusters in New Zealand state housing areas tend to have decent houses :-).
Yes New Zealanders are averse to investing in the 'real economy' as you put it, probably because many of the people involved in the 'real economy 'are fucking dishonest :-).

Trotsky said...

Affordable housing is a driving middleclass concern and presenting a plausible plan to resolve it has the potential to shift votes to labour from national. To promise the building of thousands of statehouse rentals for the underclass is dumb politics, it wont pull any votes from the right. Giving cheap houses to rich kids almost certainly will.

Aside from the immorality of providing social welfare/social housing to young elites, my big disagreement with labours house for votes scheme is its falsity:

World wide house price increases are being driven by land price inflation (building costs have gone up a bit with regulations requiring double glazing and insulation) caused by a scarcity of land.

This is being resolved by the current government by rezoning allowing high density living (growing the city in and upwards), as well as adding new green field sites. This all takes time and with the easy credit conditions, booming economy and big inflow of net immigration its unlikely land inflation will reverse any time soon.

With that background will labours subsidised family home for wavering national voters work in producing mass affordable homes - not likely, will it win some votes and get cunliffe in the power seat - you betcha !

Loz said...

The first Labour government completely rejected free markets for the provision of New Zealand’s needs. As Prime Minister, Mickey Savage was a boarder with no property interests of his own. Labour embarked on the massive State Housing programme to flood the country with a supply of high quality, affordable homes and it also passed the 1936 Fair Rent Act to restrict the ability of landlords to profit from the housing shortage.

The current parliamentarian financial register shows 70% of National's caucus own more than one property (Chris Tremain declared interests in 21). Labour's caucus differs from National in only degrees as 50% of its representatives own multiple dwellings too (Raymond Huo tops the Labour MP group with interests in 8 properties). With such a vested interests it seems almost impossible to imagine Labour adopting the types of determined policies its founders introduced to deal with the housing market.

jh said...

This is a bombshell (idea) Chris?
The globalization of real estate upends some of our basic assumptions about housing prices. We expect them to reflect local fundamentals—above all, how much people earn. In a truly global market, that may not be the case. If there are enough rich people in China who want property in Vancouver, prices can float out of reach of the people who actually live and work there. So just because prices look out of whack doesn’t necessarily mean there’s a bubble. Instead, wealthy foreigners are rationally overpaying, in order to protect themselves against risk at home. And the possibility of losing a little money if prices subside won’t deter them. Yan says, “If the choice is between losing ten to twenty per cent in Vancouver versus potentially losing a hundred per cent in Beijing or Tehran, then people are still going to be buying in Vancouver.”

The challenge for Vancouver and cities like it is that foreign investment isn’t an unalloyed good. It’s great for existing homeowners, who see the value of their homes rise, and for the city’s tax revenues. But it also makes owning a home impossible for much of the city’s population. And the tendency of foreign buyers not to inhabit investment properties raises the spectre of what Yan has called “zombie neighborhoods.” A recent study he did found that a quarter of the condos in a luxury neighborhood called Coal Harbour were vacant on census day."
As discussed on The Panel.
The xenophobes are right? Jamie Whyte, John Key, Peter Dunne, The NZ Initiate, all blinded by greed and the good life?

Actually I recall Neville Bennett saying that we lived in a globalised property market. How could ordinary Kiwis not be affected and isn't a nation more than just a geographical area. Isn't there a social contract for government to govern in the best interests of the many , not the few?

jh said...


Davo Stevens said...

Victor: Nothing is simplistic or utopian with politicians today.

The problem with the funds disappearing into the general fund is that the gubbies would then use it for other purposes.

That was why ACC was set up as a separate organisation independent of the Govt. As it should be. If there was a shortfall then some money could be transferred to the ACC fund.

I still can recall the time BRM (before Rob Muldoon) when my payslips showed all the deductions and what they were for. Rob stopped doing that and put it all into one fund. Now it's hard to track where it is going.

Victor said...


Of course.

And what this proves is that ring-fencing funding doesn't work in lieu of acceptance of state responsibility for meeting certain needs on a rational and comprehensive basis.

Gain that consensus and the rest should be a simple matter of implementation, as with any other field of government expenditure.

We don't have an ever-so-special fund set aside for education, defence or staffing the diplomatic service. We just do it!

Why should funding a wholly necessary but arbitrarily selected set of health and related interventions be any different?

Certainly, nothing's gained through the fiction that it's, in some sense, a form of "insurance" against untoward "events", other than to encourage the market forces crowd to take the fiction seriously.