As the clamour for meaningful action on housing affordability grows, Jacinda Ardern and her Government will have to demonstrate talk about tackling the crisis is not empty rhetoric, Sam Sachdeva writes
Monetary policy is rarely a hot political football, yet the role of the Reserve Bank in checking – or further stimulating – house price growth is snowballing into an area of significant contention between parties at Parliament.
At issue is the bank’s $28 billion Funding for Lending Programme, designed to lower interest rates and encourage Kiwis to borrow more and stimulate the economy.
But some fear the scheme will simply fuel the boom in the housing market at a time when prices are already surging in the middle of a recession and global pandemic.
National’s new shadow treasurer Andrew Bayly has taken aim, calling on the Government to “rein in” the Reserve Bank and place greater restrictions on how its funding can be used – a suggestion Prime Minister Jacinda Ardern treated with near-disdain as undue interference in the bank’s political independence.
Despite that, Ardern has acknowledged concern about the house price boom – little surprise given the political ramifications for her Government.
National’s failure to tackle the housing crisis – and Labour’s promises to fix it – played a significant part in the latter’s rise to power after the 2017 election.
“We believe things can be better, and under Labour they will be better. We can make home ownership possible again by building homes, by banning foreign overseas buyers from investing in our residential market, and by closing tax loopholes.” – Jacinda Ardern in 2017
After replacing Andrew Little as Labour leader in August 2017, Ardern pressed then-Prime Minister Bill English on his suggestion that surging prices were “good problems to have actually”.
“How can it be easier for this generation of first-home buyers, when an Auckland homebuyer now, on average, needs to save a $200,000 deposit to buy a home?” she asked.
There were further rousing words in the Labour leader’s adjournment speech ahead of that year’s election: “We believe things can be better, and under Labour they will be better. We can make home ownership possible again by building homes, by banning foreign overseas buyers from investing in our residential market, and by closing tax loopholes. We can house the homeless. That means stopping selling state houses and actually building some state houses and making sure we have emergency beds.”
Yet Auckland’s median house price has risen almost 20 percent since she made those remarks, while the national median price has soared 37 percent over the same period.
The KiwiBuild programme was once touted as Labour’s grand housing solution, but it is now a potent symbol of the Government’s failure to deliver on its promises – as tacitly acknowledged by Ardern in the demotion of Phil Twyford, the minister once charged with making KiwiBuild a reality but now stuck outside Cabinet.
The picture is little better when it comes to social housing, where the waitlist has more than trebled since 2017 to more than 20,000 households.
The Government’s public housing programme has been a relative success, certainly by KiwiBuild standards, with Kāinga Ora delivering over 1200 new state houses in the year to June 2020 despite Covid-related construction delays – but demand is still outstripping supply by some margin.
A problem with no easy solutions
So what is the solution?
That is not a particularly easy question to answer, at least in the short term.
Ardern has hinted that the income caps for the Government’s First Home Grant scheme could be loosened, saying she had asked for more advice on “a natural place for us to look at” – but there is a non-zero chance injecting state money into the deposit pool could simply lift house prices further.
The creation of a $350 million ‘Residential Development Response Fund’ may help to prevent some developments from falling over due to Covid-19 through government underwrites, but it feels incremental rather than transformational, while most of Labour’s other campaign policies focused on public housing rather than the private market.
An overhaul of the much-maligned Resource Management Act could provide some relief on the supply side of the equation, with Ardern saying RMA reform is a priority for the first half of 2021 – but it could take some time to wind its way through the legislative process, and even longer to have a material effect on house prices.
Even if she won’t intervene with the Reserve Bank, Ardern and her ministers will need to develop some kind of meaningful solution on housing if she is to live up to her claims towards transformational government – and her party’s grip on power.
There has been little sign of any replacement for KiwiBuild in terms of a government-led effort to significantly increase supply, perhaps understandable given the freshness of those policy wounds.
To some extent, the anticipated effect of the Reserve Bank’s moves is merely salt on the wound, given the underlying structural problems with the housing market.
But it nonetheless seems unwise for banks to be given carte blanche to channel the financial injections into the housing market rather than more productive assets, as Bayly has pointed out.
Even if she won’t intervene with the Reserve Bank, Ardern and her ministers will need to develop some kind of meaningful solution on housing if she is to live up to her claims towards transformational government – and her party’s grip on power.
Housing affordability has consistently rated among the top five issues for Kiwi voters in recent years, and disproportionately so for left-wing voters.
The Covid-19 crisis may have taken up much of the political oxygen for the time being, and Ardern’s argument that unwinding a decades-long problem will not be a quick fix is fair – but she will need to show that the Government is paying more than lip service to the idea of a solution.
