We have a housing affordability crisis in this country. Close to one in three New Zealanders are in strife – spending 30% or more of their disposable income on housing. The 30% is an internationally agreed benchmark for housing affordability. Pay any more than that, if you are on a low income, and you’re likely to be in trouble.
The numbers of New Zealanders paying more than 30% have been high for years. But they just got higher. To record levels.
Housing costs this high can mean there just isn’t enough left over at the end of the week for food, clothing, transport, medical care or all the other expenses of raising a family.
If you’re heavily mortgaged it can mean your family is one job loss away from a mortgagee sale.
Our houses are amongst the most expensive in the OECD in relation to incomes. It is driving more and more Kiwi families into poverty. And it is a major driver of income inequality.
We all know house prices have gone up. But according to a paper produced last year by the Department of Prime Minister and Cabinet they have gone up a whopping 80% since 2002.
If you got into the market in the 70s or 80s you might be sitting pretty. Skyrocketing prices have effectively transferred huge amounts of wealth to home owners through capital gain. Net wealth per capita doubled between 1980 and 2001. And doubled again 2001-6 as a result of the housing bubble.
But for the growing number of Kiwis who cannot afford to get into the market that dream of home ownership is disappearing into the distance. A big wealth gap has opened up between homeowners and renters. It is yet another way that the babyboomers have grabbed the best cuts, leaving Generations X and Y to fight over the scraps. By 2006 only 29% of renting couples and 2% of renting individuals could afford to buy a cheap house in their region (spending 30% of income on mortgage payments).
Scarily, the long term trend is heading in the wrong direction. In 1988 only 11% were spending 30% or more of their income on housing. By 1997 it was up to 25%. It dropped 2001-4 but has been rising rapidly since and is now up to 29%. The recession is bound to have slowed the trend with house prices stabilising but there are already signs the market is picking up again.
According to the 2009 Social Report lower income families have been particularly hard hit by the increases. The proportion of households in the lowest 20% of income spending more than the benchmark 30% on housing trebled between 1988 and 1994 (rising from 16% to 48%). It dipped and then levelled off for a while but has been rising steeply for the past couple of years, going from 33% in 2007 to 39% in 2008.
That increase in the last couple of years ate up much of the benefit from Working for Families tax credits. And without doubt is a big factor behind the rise in poverty levels in 2008.
As you’d expect, rates of home ownership are now plummeting too. Owning a home has been one of the main factors keeping older people’s heads above water financially. As things stand Gen X and Y won’t have mortgage-free homes to get them through their twilight years. Add that to the question mark over superannuation caused by National’s suspension of pre-funding and it is not a pretty picture.
Something has to be done.
* Borrowed from “Gizza job, I can do that” the immortal line of Yosser Hughes a character in Alan Bleasdale’s 1980s TV drama The Boys from the Blackstuff.
Solutions:
1) Capital gains tax (huge mistake by Labour to never introduce one)
2) Councils, particularly in Auckland, need to provide for housing intensification more. While I am a big fan of the Metropolitan Urban Limit, it has constrained land supply and the provision of intensification has not counter-balanced this enough.
3) Simply, we need more houses. Councils and government needs to get back into building houses. They don’t need to retain ownership, just to do the job that the private sector is not doing enough (I think the private sector is possibly deliberately drip feeding supply to maintain high prices).
4) Make the provision of affordable housing a matter of national importance in section 6 of the RMA.
What do you suggest be done, Mr Twyford? Can you suggest any measures that might improve people becoming property owners? Surely you can think of something creative, rather than describing a problem that was exacerbated by the last Labour government, where house price inflation rocketed.
Perhaps a good start might be allowing state house tenants to purchase the properties they live in.
Hell jarbury, that was a pretty quick jump to solutions!
Great post Phil. You’re absolutely right, this is a huge problem that needs attention.
It should be every Kiwi’s right to own their own home without having to live in poverty to do it. But it’s as much an issue of free as it is poverty alleviation. You can’t exactly live your life as you see fit in someone else’s house. As a renter you have little actual power or control over your living space, and this greatly affects your quality of life.
I don’t think a capital gains tax or releasing more land to sub-divide is the sole answer. We need a radical rethink to keep the NZ dream alive, and this may include things like restricting ownership of residential property in New Zealand to residents and citizens. And it could also include severe taxes on those owning more than five homes.
It’s critical we do everything we can to preserve the power of homeownership for all Kiwis, not the lucky wealthy few.
30%! i’ve never spent less than 50% – from my student days a decade ago (where it was 85% of my income) till today.
You can’t afford to separate planning and social policy from housing policy. It would be a huge mistake to take away Local government’s ability to facilitate affordable housing as they are the one’s who are responsible for land use planning. This affects employment and transport infrastructure which are inseparable.
Its all very well building affordable housing but it must be in proximity to infrastructure and employment.
Excellent post Phil. The problem is exacerbated by the fact that we do not have a stable rental culture, or solidly developed alternatives for saving. Furthermore, I think that the mismatch between putative property prices and the money actually generated here is dangerous, as much for those who seem to be benefiting from it as for those missing out. Take leaky homes for instance – local governments who approved these places ought rightly to compensate their owners, but would probably be bankrupted if they made any such honest attempt. And the person whose $150,000 home is now a $700,000 home is probably not earning much more than before, but has almost seven times the potential for debt.
Some of the people writing above have offered possible solutions, but they seem to come from some dream country, where the term “living wage” still has meaning, and unicorns frolic in the green fields.
Tim Ellis – We’ll get to solutions. Don’t you worry.
‘Boys from the Blackstuff’. What great TV that was. Shame the standard has dropped so far.
No need for capital gains tax, we have existing laws which should be enforced. Any sale of asset within 18 months of purchase, unless you are already a trader and are in this category anyway, you are taxed as ordinary income on any capital gain. With provisions for catching those who do 2 or more in 5 years as well.
Simple . Clear . Enforceable.
I have thought a lot about this issue Phil – so therefore had some “pre prepared” solutions up my sleeve.
As long as the answer is not “ban metropolitan urban limits”, which I suspect National’s ‘better approach to urban planning’ work stream of its phase II RMA reforms will come up with.
The 30% is an internationally agreed benchmark for housing affordability. Pay any more than that, if you are on a low income, and you’re likely to be in trouble.
Dependants would matter too, surely.
Although I partially agree with you, I have very little sympathy for generation Y, with all its credit cards and lack of saving when I think of how hard the baby boomers worked. – I know that doesn’t apply to everyone, maybe I’ll feel bad about saying it later.
I like jarbury’s idea of the government building more houses.
Capital gains tax,
Spud: The terms “baby boomer” “generation Y” etc, are advertising categories, and do not reflect real life in any exact manner. In fact, many baby boomers were derailed by Rogernomics, so rather than being engaged in taking all the oxygen from everyone else, they are oxygen deprived themselves. Secondly, the generation that is now in its early thirties has managed to get the worst of both worlds, with high student loans, taken up before the interest was knocked off, followed by house prices that lock them out of home ownership. They are offered consumerism in lieu of security, not in addition to it, and would find it hard to save for a home even if they gave up coffee and designer jeans. Thirdly, even if the so-called baby boomers have in many instances worked hard, that does not justify those who have prospered spoiling things for the next generation.
I agree with you about generation x, definitely, but still no sympathy for y.
“In fact, many baby boomers were derailed by Rogernomics, so rather than being engaged in taking all the oxygen from everyone else, they are oxygen deprived themselves” – I couldn’t agree more, that was a disaster.
I don’t quite agree with you, I think they’ve earned it, but I do agree that it makes it harder for younger generations.
Believe it or not to help bring down property prices you need to look at transport planning, price, land use and transport are all interlinked and the first two “follow the lead” of transport planning… What do I mean..?
Well, in the Auckland CBD there are 50,000 car parks, on average they cost $30,000 dollars to develop, that’s $1.5 billion dollars worth of land alone tied up in storing people’s personal property in our CBD and on our CBD’s streets… Auckland wide it would be at least $30 billion dollars, what do you think having $30 billion dollars of land used as parking does to house prices..? Is it any suprise with our car based city..?
The solution is most definitely to build up not out (with all the extra infrastructure costs that go with building out) and to use our existing land wisely through Transit Orientated Development (TOD) around public transportation nodes…
The government can and should lead this development through the Public Works Act and by building medium rise, mixed use, mixed wealth developments with excellent public space around train and bus stations or interchanges…
Auckland geographically is not an idea location to base the largest city in NZ, as unlike say in Aussie we are on a narrow istmus, and cannot grow out in 270 degrees. Labour had an opportunity to assist in growth in NZ. e.g. Pokeno on the motorway both SH1 & 2, main trunk line. Yet H.Clark placed her interests in Pegesus Bay 30 minutes out of Chch.
Intensification of Ak has a few very major problems. S/W and sewer pipes that are alerady at set limits, roading no able to meet traffic demands etc. No input by central govt into planning for Ak growth. You only see Transit oppossing any plan changes. e.g. Silverdale, Karaka, Pokeno,Flat Bush, One Tree Point unless developers pay for motorway ramps at $15- $20m., and how can you get a fragmented ownership to contribute before development can start.
MOE acquiring land for schools 4 years after plan change is operative e.g. Flat Bush. and the area already with 10k of an est 45K increase in population already being resident.
And as a list 10 years time span to obtain a plan change, development cont approaching up to $30k/lot, reserve cont, Stormwater Cont, Public ammentity cont all equating up to $50k/lot. Add on infrastructure power,gas, teleco, streetlights, roading, footpaths thatthe developer pays 100% for. Unless you go into multi level appartments, or keep individaul section sizes below 300m2 (Yes that is right) you cannot develope and sell a section for under $200k (That is for a section under 300m2)
For these comments I am referring to a land developer only.
In summary Phil, which I believe is the biggest problem. It has been easier to make the same amount of money speculating on land buying and selling, than developing land into houses. The result relatively large areas of zoned not being developed. Artifically pushing the price up. This along with banks unwilling to fund the developemnt but will fund acquisition of land. The result stagnation of development.
Gizza gizza gizzaaaa
And who pays for it?
“Owning a home has been one of the main factors keeping older people’s heads above water financially. As things stand Gen X and Y won’t have mortgage-free homes to get them through their twilight years”.
Yes and when all the “older people” pop off to wherever dead people go, who do they leave all their homes, cash, cars, rental properties to?
Yes – the lazy savers of Gen x and y will inherit the earth eventually through their mummys and daddys.
Hence why should hard working x and y’s pay for them to own a home now?
Herodotus, hence the need to have a council development agency with requiring authority (designation) powers. That’s how you can get around the fragmented property issue.
Of course it would be a big call to give Public Works Act powers to effectively a profit-making council agency, but big problems call for big solutions.
jarbury, councils are so indebted within Franklin north that they will not help. RDC had a debt of a few million 10 years ago now it is $200m (From memory) and they are forced to sell some of their land holdings.Designated authority is one thing yet the need to fund, and contribution payments do not occur until development is completed.
Stormwater ponds have to be constructed before the issue of S224, what happens if the land owner on where the pond is to be built does not want to sell. If a developer up stream wishes to develop but downstream owners do not, nothing happens.
From sheep in the fields of zoned land to a 50+ lot subdivision takes 2 full years to develope from my knowledge. And that does not include the prep before construction for the likes of Land Use & Land Modification from ARC & Subdivisional consent from local council.
Also all the easy to develope land has been built so we now have left the more challanging land that requires massive $ input for land stabilisation shear keys,counterford drains., palisade walls etc
@Spud I have very little sympathy for generation Y, with all its credit cards and lack of saving when I think of how hard the baby boomers worked
How hard the baby boomers worked? They invented consumerism and an obsession with whiteware. They kept Rob Muldoon in power who came up with the very good idea to scrap baby boomers saving for their own pension and instead have genYers pay for it. Baby boomers walked out of school and straight into jobs. They were on easy street, especially compared to the struggle GenX school-leavers had.
GenYers have had a far briefer period of easy jobs and easy money which is now over. I rather suspect they’ll leave a better legacy for their grandchildren than baby boomers have.
I’ll think about what you wrote, I’m too tired to agree or disagree tonight, plus I’m still getting over the shock of being in agreement with Cactus Kate
Have a good sleep. Meantime, here’s a provoking quote from here:
“My most recent property development in Christchurch was an 18 lot high quality, hillside sub-division pitched entirely at this market. With no schools nearby and a need to have two cars per household, in every case bar none these empty nesters built five bedroom, two and a half bathroom homes with treble garages. That means there are 90 bedrooms, 45 bathrooms and 54 garages for 18 couples. Think about that – there are 18 bedrooms occupied yet 90 bedrooms built!”
Spud
I am always right.
Bea’s right.
The baby boomers enjoyed a welfare state, free education, a decent job on tap with with even more decent conditions. They only had to lift a finger and they got comfort and security. Look at Paula the pin up girl. Housing Corp mortgage and home ownership at 19. How many solo mother can do that now without slogging their guts out more than they are slogging now?
@the poster formerly known as millsy – I miss millsy, why has he gone away?
and why the name change? (If I’m being too nosey, feel free to ignore the question).
@Bea – I can’t open your link
I also agree that baby boomers had a much easier time getting a job.
I agree with Cactus Kate that the baby boomers will leave their haul to their children. Rob Muldoon was a creep
@ the poster formerly known as millsy – I agree solo mothers have a much worse time now, especially with the tories in
@Bea – I’m still thinking about what you said.
“And who pays for it?”
Ha ha, I love it… Libertarians should get this tattooed on their forehead…
Here’s the link http://www.babyboomersguide.co.nz/Articles/Will+there+be+a+crash+in+2010/The+House+Price+Crash+of+2010.html
Thanks Bea, I promise to read it this afternoon, I won’t be able to get near a computer until then.