Looking at the polls, or the flow of daily news, in many respects it no longer much matters what policy positions the leader of the National Party is enunciating. Hardly anyone supposes that the government after the election won’t be either Labour alone, or Labour and the Greens. And so if we are at all concerned about policy, what matters for the next few years is what Labour’s leader is saying, and what – as incumbent Prime Minister – she has been doing.
Three years ago we were told by the Prime Minister – and correctly so – that the housing situation in New Zealand was pretty bad (the word “crisis” was often flung around). House prices had risen enormously in the previous few years, as indeed they had under the previous Labour government, and the National government prior to that. She made much of “child poverty”, and most serious observers recognise that a significant contributor to problems in that area was the extraordinarily high level of house prices in New Zealand. A few thought Labour was getting serious about fixing the grossly-distorted housing market – making it a functioning market, rather than a thing rigged by central and local government. The Executive Director of the New Zealand Initiative had even done a joint Herald op-ed with Phil Twyford who was then Labour’s housing spokesman.
I was among those who was on record here as being sceptical. Controversial reforms only happen if they have strong backing from the leader/Prime Minister. But whether under Andrew Little or Jacinda Ardern, Labour leaders in Opposition never highlighted the core problem – the land use restrictions – and only ever cited the palliative or distraction measures Labour was proposing; ones which, if they had any effect at all, might be a few percentage points in a climate in which house prices were perhaps twice what they really should be in a functioning market with abundant land. When, with a functioning land market and the lowest interest rates in a very long time, real rents should have been cheaper than ever.
What were they proposing? There was the proposed foreign buyers ban, the extension of the bright-line test, and ring-fencing. There was the vaunted capital gains tax, and talk about immigration (although the specifics would have changed the net flow for only one year). And, of course, there was to be Kiwibuild. If you dug enough in Labour’s manifesto you might find mention of land-use reform, but it never got much attention or profile at all.
And where are we now after three years in office? The REINZ’s measure of median house prices has risen by another 27 per cent – and real house prices are so high that 27 per cent increase at these levels are much more material, and damaging, than 27 per cent increases might have been 20 years ago. There hasn’t been much general inflation in the last three years – about 5 per cent in total – so real house prices are up in excess of 20 per cent in just three years. In none of that period was the economy performing spectacularly well, and of course this year has been flat out disastrous, mostly due to events beyond the government’s control.
And what has the Labour-led government done in that time? They’ve done some of their specifics – the PM last night claimed the foreign buyers ban had made a difference – while others have just fallen by the wayside. Capital gains tax is no more, and Kiwibuild was one of the government’s more embarrassing failures – not that, even if delivered, it would have made more than a jot of difference to the underlying, land price issue. Oh, and they’ve been consulting on locking up more land – especially on the outskirts of Auckland – as allegedly “highly productive”. Thank goodness we didn’t have that sort of government when Carlaw Park was in use as market gardens or Manurewa or Lower Hutt or…..
Asked about house prices in the debate last night, the Prime Minister seemed reduced to hand-waving. Perhaps the foreign buyers’ ban did make a small difference – it is genuinely hard to tell – but even with it real house prices have still risen in excess of 20 per cent in three years. For a city with median house prices at five times median income – and Auckland, Wellington and Tauranga are far higher than that – that 20+ per cent real increase is equivalent in cost to a whole additional year’s income. (In well-functioning markets, house price to income ratios of three are quite sustainable).
She seemed reduced to claiming that she couldn’t have fixed the housing market in three years – a claim that is not only wrong, but belied by the fact that her government has shown no real sign of trying, and is not promising anything much different in the next three or six years. One might almost believe that the Prime Minister doesn’t really care about the level of house prices at all, so long as she can keep it in check as an electoral concern. And, as a statist at heart, she’ll be happy when lots more people are in state houses – perhaps a reasonable outcome in itself, for a small minority, but hardly a systematic solution to one of the most egregious policy disasters in modern New Zealand history. (On that statist note, did anyone else note that when talking about lifting living standards her only answers seemed to be higher minimum wages and the state paying “living wages”, with never a hint of firing up overall economic performance in a way that would support market-led much higher wages all round.)
But we heard nothing from the Prime Minister – last night or in other speeches or interviews – suggesting she has any sort of vision of much lower house prices in New Zealand. I saw this post on Twitter yesterday afternoon
The Little Rock metropolitan area is bigger than Wellington and Christchurch but smaller than Auckland. These houses are about as far from the centre of town as Upper Hutt is from central Wellington or Orewa to central Auckland. And just look what you get for around NZ$300000. (In a place with interest rates just as low as those in New Zealand with – for the leftwing journalists currently aggrieved at loose macro policy – a central bank doing even more to buy up all manner of assets.)
But you don’t hear the Prime Minister talking of that sort of affordability as something New Zealand should be matching. But think about the sort of difference it would make if we did – not just to people buying a house to live in, but to the cost of supplying rental accommodation as well. It isn’t some silver-bullet to the issues around poverty – 50 years of real economic underperformance aren’t just about house prices – but it would make an enormous difference, and (not incidentally) turn houses back into a (lifetime) consumption item, not something to stress about or speculate on the value of it. Fear of missing out – which has, reasonably enough, driven many younger people – would be a thing of the past.
And even if one granted – what may have been the PM’s point – that writing a robust new land use law might take some time, markets trade in a forward-looking way. If anyone really thought Labour was serious about taking steps that might make a three bedroom house on a decent section affordable again, they’d hold off buying. And those who own the artificially-scarce land available for development would be looking to offload it now – developed or not – before that scarcity premium vanished from the price. But there is no sign of any of that. Instead, we have the government’s official economic advisers forecasting a new surge in house and land prices once the immediate Covid dip has passed.
Now, we know the government has had a report recommending its own rewrite of planning law. Who knows what will come of that, but it is hard to be optimistic. Again, if it were genuinely going to open things up we’d see the smart money moving already and peripheral land prices falling. But no sign of that – any more than there was when the Auckland spatial plan was put in place.
The dominant ideology of Labour (and much more so the Greens) seems to be simply opposed to allowing the physical footprint of our cites to expand much at all, a firm opposition to allowing markets to work in determining where new development takes place (thus, in combination cementing in quasi-monopoly land prices), all while both parties are wedded to driving up the population rapidly. Of course, some of them will tell you they are keen to facilitate greater urban density in existing suburbs near the central city or around transport hubs. I don’t have too much problem with that in principle, but it don’t think it is either right – or probably politically tenable – to ride roughshod over community preferences (many/most new developments run a system of private covenants, and it isn’t obvious why existing neighbourhoods shouldn’t have that possibility if that is what most existing owners want) and – more importantly here – there is little or no evidence that the drive for density, and height, is likely to lower the cost of a constant-quality unit of housing. Sure, you economise on land – even though gardens are what many people would actually prefer (revealed preference illlustrates that) – but the cheapest way to build houses is single-level properties, and (I’m told) the per unit costs of apartment blocks of several storeys are really quite high. Unless the land market is opened, so that there is genuine amd aggressive competition to supply new development sites, it is very unlikely that anything is going to change to deliver land-abundant New Zealand the sorts of real house prices it could, quite readily, have.
And that’s just a disgrace; a shameful reproach on both major parties (and their sidekicks) – but it is Labour which has been in government these last few years and almost certainly will be for the next few. It is inefficient and discourages inter-city labour mobility, but – more importantly to me – it is simply deeply unjust, with the burden falling most heavily on the young and the poor (in New Zealand that means disproportionately Maori), on new arrivals, and on those without wealthy parents, or even just on those who value self-sufficiency and earning their own way in life.
I look at my own teenage children and grow increasingly angry at the indifference of a Prime Minister who endlessly talks about “kindness” but has done nothing to fix the grossly distorted housing market, just presiding over ever-worsening imbalances. My son came home from the church youth group the other night telling me that one of the church leaders had said that he and his wife had purchased their first (inner Wellington) house for $25000 (at what would have been near the peak of the early 70s boom). That is about $250000 in today’s money. I checked that same house this morning – now almost 60 years old – and an online calculator estimates a value of $755000. Sure, real incomes are higher now, but in a functioning market that doesn’t justify higher – constant quality – real house prices. How would almost any early-mid 20s couple today purchase a first home in our cities? That should be a normal and reasonable expectation – looks still to be in much of the US – but this government seems quite content to turn the vast bulk of the country into a nation of renters. I recall going to Switzerland for a central banking course about the time I bought my first house, and being told by our hosts that prices in Berne were so high that really only department heads at the central bank owned their own houses/apartments. I was shocked – and disapproving – then, but never imagined it would be the case in land-abundant New Zealand. But something increasingly close to that is the legacy of National and Labour.
I try to be even-handed on this blog, and thus I should repeat that I have no idea if National would be any better now. They weren’t last time – despite positive rhetoric then too – but perhaps this time would have been different. But it doesn’t matter. They won’t be in government for the next few years. And all the evidence is that we have a Prime Minister who doesn’t care about lowering house prices, is uninterested in spending political capital or making the case to do so, and to the extent Labour has policy ideas in this areas none are likely to deliver real house prices lower than the disgracefully high level they were even three years ago when Labour took office.