Wellington rental market: a problem of success?

I’m a bit tied up with other stuff today, so will come back to the New Zealand Initiative’s immigration report next week.  But in the meantime, I was somewhat taken aback to see the Prime Minister quoted as describing the current squeeze on the Wellington private rental market as “a problem of success“.

Sadly, it is like some line lifted directly from the John Key playbook.  I wrote last year about the then Prime Minister’s ludicrous, and frankly insulting to the intelligence of ordinary citizens/voters, attempt to pass off the extraordinary pressures on Auckland house prices and infrastructure, including traffic congestion, as “quality problems”.  In fact, what they were –  and are –  are failures of central and local government to get the land supply market functioning effectively, having over-regulated it in the first place, interacting with central government’s decisions to keep on bringing in lots more non-citizen immigrants.

How does the new Prime Minister justify his insouciance about the Wellington situation?

However, English said the demand for rentals was “a problem of success”, which the Wellington City Council was already trying to address.

“It’s actually a long time since Wellington has felt the pressures of growth – the Government’s investing large amounts of money in the infrastructure…

“The council has shown that it understands for the first time in a number of decades, there is pressure on the housing stock and they are enabling more houses to be built because that’s the only way that they’re going to see a bit less pressurised.”

Damage to Wellington office buildings from last November’s Kaikoura earthquake had also had “a bit of a flow-on effect” to the city’s accommodation, English said.

Although the large lines were “certainly concerning for people who are looking for accommodation”, they did not show a crisis as the housing shortfall was well understood by the council.

Wellington hasn’t experienced pressure in its market for quite some time and as long as they respond quickly, they’ll be able to deal with it.”

I presume not even he is arguing that the earthquake effects were a problem of success.

I was a bit puzzled by the infrastructure spending line.  I’m looking forward to trying out the new Kapiti expressway, but the biggest local infrastructure spend is on Transmission Gully,  the total uneconomic  new motorway on the outskirts of the city.  Perhaps that might, in time, help ease housing pressures in Wellington city, if people could get in more easily from Kapiti, but then I recall a commenter a while ago pointing out how little land Kapiti had actually zoned as residential.

But what really puzzled me about the PM’s comment was that it was a long time since Wellington had felt the pressures of growth, as if this was the dawn of some new renaissance of Wellington.  But here are the population growth data for Wellington city (where the pressures seem to be), greater Wellington (Wellington, Upper and Lower Hutt, Porirua and Kapiti) and New Zealand as a whole.


Wellington city has had population growth rates very similar to those for the country as a whole –  Wellington city grew faster than the country as a whole in the previous population surge in the early 2000s, and has been just slightly behind in the last few years.  As for the “greater Wellington” region –  a more comparable basis to compare to Christchurch or Auckland –  there has certainly been a rebound in population growth in the last few years, but it continues to lag behind New Zealand’s population growth rate as a whole.  In only two years in the 20 shown here has greater Wellington’s population growth exceeded that of the country as a whole, none of them in this decade.    House prices rose rapidly in Wellington in the 2000s boom, and they are doing so again now.  It just looks like the same old shared central and local government failure.

I’ve written about rents previously.  In a well-functioning urban land supply market, a substantial and sustained fall in real interest rates should be expected to result in rents falling.  Actually, what has happened –  and still appears to be happening in Wellington –  is that real rents have been rising: not as much as house prices have certainly (rental yields have been falling), but they;ve been rising when, if governments hadn’t so badly messed up the housing market, they’d have been falling.

But, says the Prime Minister, not to worry: the Wellington city council is apparently on the case and moving to resolve the problem.    Really?  They didn’t do anything very much in the previous boom, and I haven’t seen much sign of far-reaching reform this time round.  Last week, they announced a plan to build more “social housing” –  which might or might not be a good thing in time –  but I’ve seen little sign of any sort of serious reform of the land supply regulatory situation.

Immediately after the local body election late last year, I wrote about the prospects for housing supply liberalisation in Wellington.

Sadly I don’t expect much.  Here is the housing policy of the new Labour Party mayor of Wellington.

For starters, I’ll be sending a bill through to parliament to make rental WoF a reality in Wellington. If you’re paying rental for a house it’s only fair that house meets basic standards. Living in a warm, dry house that’s free of mould should be a right for every Wellingtonian.

I’ll also invest in social housing, so there’s more available for the people who need it most. This means a long term building program, partnering with third sector housing providers to increase the number of live-to-own dwellings. It also means improving the 2500 existing Wellington council owned social housing units, making them safer and better to live in. 

But that’s not enough. It’s vital that we look after those in need, but we also want Wellington to grow and prosper. That’s why I’m offering a $5000 rates rebate for anyone building their first home in Wellington. Newer homes means better quality homes, and Wellington needs to encourage fresh young talent and new families to move here if we want to keep thriving. 

Plus, I’m committed to establishing Build Wellington, an urban development agency that will utilise existing green-field land holdings for affordable, good quality residential development in the tradition of state and Council housing in years gone by.

Nothing, at all, about freeing-up land supply, just more statist “solutions”, and a local version of the sort of first home buyer grant central government offers –  the sort of tool that has been proved, time and time again, to do precisely nothing to improve housing affordability.

And this is the Council that the Prime Minister thinks is going to quickly resolve the stresses?    Promising to make renting more costly, and offering subsidies to first home buyers to bid up the price of houses

In truth, Wellington’s situation looks a lot like the situation in the country as a whole –  a milder form of Auckland’s stresses, with 2 per cent population growth at present rather than 3 per cent.  There is no sign that housing stresses are a result of some great Wellington renaissance, but rather it looks like the outcome of the same old mess: land use regulations imposed and enabled by central and local government combined with a fresh wave of fairly rapid population growth.  Some of that is about a drop in the number of New Zealanders leaving Wellington –  only about 800 last year – but much of it is, in effect, down to central government’s non-citizen immigration policy.