It is possible to bring house prices down to affordable levels, permanently, if our political leaders have the courage and foresight to transform the housing system, write Dr Jenny McArthur and Jacqueline Paul
Tomorrow, the Helen Clark Foundation will publish a research paper on four policies that could make housing more affordable. The authors of the report argue the crisis will continue until politicians are forced into dismantling the current system.
The housing affordability crisis hits young people – particularly Māori and low-income groups – the hardest. Meanwhile, housing policies continue to cater to the interests of property owners, for whom the crisis has created unprecedented growth in household wealth. It doesn’t need to be this way. The affordability crisis is the result of a property-led wealth model set up to push house prices ever-higher, supported by a cultural bias towards homeownership and easy access to mortgage debt. A different future is possible if politicians are bold enough to dismantle this system by taxing capital gains, limiting the growth of mortgage lending, and boosting capacity for government-built, genuinely affordable homes.
The crisis seems like it can only get worse. The public housing waitlist has more than tripled since 2014, at a record 14,000. House prices in Auckland have slowed down, but are still nine times the median income. Meanwhile, prices are growing rapidly elsewhere: last year 2018-9 they grew 15 percent in Dunedin, 19 percent in Whanganui and 29 percent in Opotiki. Rents are also increasing much faster than incomes. Unsurprisingly, there are harsh knock-on effects for homelessness and overcrowding. These are particularly severe for Māori, who are half as likely as Pākehā to own their own home, and five times as likely to be homeless or living in insecure housing. The current crisis significantly entrenches the legacy of discrimination and housing injustice Māori have struggled against since colonisation.
This is not a crisis for everyone
The consequences of severely unaffordable housing are mostly shouldered by younger generations who have no choice but to spend an excessive share of their income on mortgage repayments or rent, for housing that is often poorly maintained or overcrowded. The crisis is also widening inequality: between 2015 and 2018, the net worth of the wealthiest 20 percent of households grew by nearly $400,000, while that of the poorest 20 percent grew by just $1000.
The current Labour-led Government reversed the previous government’s programme of state housing sales and built an extra 2050 properties, with more planned. More state housing is essential, but it isn’t enough to address the more fundamental causes that have created, and continue to perpetuate, the affordability crisis.
A different future is possible – but only if young people vote
Young people could be a significant political force. Only 53 percent of 18- to 34-year-olds voted in the 2017 general election, making up 23 percent of voters. If every eligible voter turned out to vote, this share would increase to 31 percent; still not the majority, but too large to ignore when margins are tight between major parties. To turn around the current crisis, young people must vote. But this won’t happen until there are meaningful solutions to the crisis on the housing policy agenda. At present, housing policies barely acknowledge the needs of those aged 18-35 – and the generations that will follow.
Young people are more diverse than previous generations, but what they have in common is critical: little chance of owning a home, and no option but to rent or share accommodation, often in overpriced, substandard properties with insecure terms. Even worse, half of New Zealand’s homeless population is under 25. Young people are also more likely to be of Māori descent. Under Te Tiriti o Waitangi, Māori are guaranteed the same rights as other citizens, and their exclusion from homeownership is a constitutional issue that must be a priority for the next generation.
What should young voters demand from politicians to address the crisis?
We need a clean break from the current system. The dream of climbing the property ladder could only ever work as a get-rich-quick scheme for one generation. Our parents’ generation benefited from untaxed windfall capital gains by merely buying when prices were low. And their capital gain is our loss, as continuous price growth directly undermines access to affordable housing for anyone who isn’t already on the ladder.
Both the current Prime Minister and the Opposition have ruled out a tax on capital gains. This must be challenged, as there is little chance of breaking the cycle of speculative investment without fair taxation of property investment.
Young voters shouldn’t cling to the same dream of climbing the property ladder. The ladder itself has created the current crisis: it relies on a cycle of higher prices driving higher mortgages driving higher prices, and it simply isn’t sustainable. The right policies can steer a long-term price reduction, complemented by short- to medium-term measures that rapidly scale up the supply of affordable housing.
There are four policies that together could bring down prices and transition to a system that prioritises long-term affordability. These are discussed further in Somewhere to Live, a research paper authored by Jenny McArthur and published by the Helen Clark Foundation on February 14.
1. Implement the Comprehensive Capital Gains Tax, recommended by the 2019 Tax Working Group. Protecting the tax-free status of capital gains on property is a key driver of the affordability crisis.
2. Reduce the level of private debt that is caused by, and also props up, high house prices. This can be achieved with debt-to-income limits on mortgage borrowing for high income households, and mortgage refinancing for lower-income households
3. Significantly increase access to finance and support for Māori to develop collective papakāinga housing on Māori land.
4. Scale up government capacity to build genuinely affordable housing, rather than relying on private developers. The Government has the resources and authority over land use planning to deliver well-located, warm, liveable homes, catering to the needs of different types of households. These could be built by the state and transferred to community land trusts or iwi for provision to low- and middle-income households as permanently affordable leasehold tenancies.
It is possible to bring house prices down to affordable levels, permanently, if our political leaders have the courage and foresight to transform the housing system. It requires policies that deliberately dismantle our property-led wealth model and substantially scale up support and finance for homes for Māori, low-income and young people. Instead, we could have a system where homes are for living in, not lucrative financial investments.