Both National-led and Labour-led Governments have failed in too many important policy areas. They’ve failed to make the slightest impact on improving New Zealand’s lousy productivity growth record. They’ve failed to deal with entrenched welfare dependency. They’ve failed to arrest a gradual decline in our education standards, especially for those attending lower decile schools. They’ve failed to arrest the steady decline into racial separatism, promoting the nonsense that the Treaty of Waitangi created a so-called “partnership” between those with a Maori ancestor and those without.
But of all the failures perhaps none is having such a devastatingly negative effect as the rapid escalation of house prices over the last three decades.
When John Key became Prime Minister in 2008, he lamented the fact that the median house price in Auckland had reached some six times the median household income in Auckland, and he pledged to reduce that ratio. The very first task which his Government gave to the newly-created Productivity Commission was to look into the causes of those high prices. And the Commission concluded that there were four main reasons for house prices being so high in Auckland – indeed, in New Zealand generally.
The first and most important problem was the fact that councils had tightly restricted the supply of land on which houses could be built. That had two effects: first, it meant that land approved for residential development was much more expensive than it would otherwise have been, with studies having shown that the price of land just inside Auckland’s so-called Metropolitan Urban Limit (or Rural Urban Boundary) was eight to ten times the price of land just outside that boundary. And that also meant that it was difficult for builders to acquire large blocks of land, and so to get economies of scale in house construction.
The Productivity Commission also lamented the high cost involved in the long and cumbersome decision-making processes of too many local authorities, and the somewhat higher cost of building materials in New Zealand as compared with, say, Australia.
But the Commission was clear that the main problem was the tight rationing of land. And what was the result? Nothing effective was done, so that when the National-led Government was defeated in 2017, the median house price in Auckland was not six times the median household income but an outrageous nine times.
The incoming Labour-led Government appeared to recognize the problem, and in the Speech from the Throne outlining the Government’s legislative programme there was an absolutely explicit promise to scrap the Metropolitan Urban Limit in order to free up land supply, and so reduce the cost of sections.
And what happened? Absolutely nothing, and the Prime Minister has in recent months made it clear that her Government has no intention at all of repealing that Urban Limit. House prices have gone up some 40% since Jacinda Ardern became Prime Minister, some 20% in the last year alone. And as a result, house prices in cities like Auckland, Tauranga and Wellington are, relative to incomes, among the most expensive in the English-speaking world. (It is sobering to reflect that in a great many US cities prices for four-bedroom, three-bathroom, centrally-heated homes on 625 square metre sections cost much less than 400 square metre bare sections in a distant Auckland suburb like Flat Bush.)
For people who are not lucky enough to have bought a home 20 years ago, or who don’t have affluent parents able to help fund them into a home, the prospect of ever owning a home is almost non-existent. They will live under financial strain all their lives, and when they retire face an almost impossible situation trying to live on NZ Super while still paying rent at levels reflecting these absurd house prices. It is madness to believe that child poverty can be reduced in any material way, as the Prime Minister professes to want, while house prices are at current levels.
And actually, both the Prime Minister and the Minister of Finance are on the public record as not wanting house prices to fall. They claim to want more affordable house prices, but also claim they want house prices to continue rising, but at a slower pace!
In one sense, that totally contrary wish – for more affordable housing but for house prices to keep rising – seems utterly absurd: it is quite clear that the Government has not the slightest interest in making housing more affordable unless, for the lucky few, it is a state house.
In another sense, wanting house prices to continue rising confirms that their primary interest, as it was the primary interest of the National-led Government, is to get re-elected. The Government knows that people who own their own homes tend to vote, and the last thing most voters want is to see the price of houses fall by, say, 50% (with a 50% fall in the median house price, prices would still be classed as “seriously unaffordable” in the Demographia survey of house prices, at least in Auckland and Tauranga).
In other words, despite crying crocodile tears about the unaffordability of houses, the current Government doesn’t actually want house prices to become affordable, because that would require a substantial fall in house prices. In that, they are no different from the Key Government.