This is the second of a series of guest posts from Lucy JH on Housing affordability
This blog post is part of a series based on a talk I recently attended by some economists about housing affordability in Auckland. I’ve already blogged about their debate over the cause(s) of high house prices in Auckland.
Another interesting issue that came up in the discussion was when Shamubeel Eaqub observed that we (and the government) shouldn’t necessarily just be thinking of high house prices in and of themselves as a bad thing.
Instead, we should be looking at the specific problems that high house prices are causing, deciding which problems we are most concerned about and designing policies to address those problems.
I thought this was quite a perceptive comment because right now there are several different groups involved in the housing debate in New Zealand, who are concerned about very different problems.
On the left you have people like Alan Johnston, arguing that the main problem with high house prices is the social problems they are causing for the very poorest Aucklanders. They believe these people are increasingly being forced into very crowded or poor quality housing that is making them ill.
I have no doubt that this is a real problem. Last year I did some work in South Auckland and met several families who were living in over-crowded conditions. One family had 11 people living in what looked from the outside (I didn’t go inside) to be a 4 bedroom house.
These left-wing commentators have argued that the government’s housing reforms won’t do much at all to improve housing affordability for the poorest New Zealanders. This is actually an area in which Labour’s recently announced housing policy is also quite weak: Although they are proposing to build a huge number of houses, they haven’t really explained whether (or how) that housing will be made available to those earning in the bottom 25% of NZ incomes who can’t afford to buy.
On the other hand, Labour’s reforms do seem well designed to address what they see as one of the bigger problems caused by high house prices: The immigration of lots of skilled young migrants to Australia and other countries.
Transport nerds argue that one of the biggest problems with high house prices is that they tend to be concentrated in central Auckland. This is driving development out to the fringes, creating congestion
and sprawling suburbs that are very hard to serve with quality public transport.
On the right, economists argue that the biggest problem with high house prices is that they are contributing to our high private debt. This is because almost everybody who buys a house takes on a massive mortgage. This huge investment in housing also means that people in New Zealand aren’t investing in other things, such as businesses, that might actually grow the economy.
The worrying thing about this last problem is that it seems that neither Labour nor National are really designing policy to address it. Instead their recent policy announcements mainly seem to be focused on trying to make it easier for young middle class New Zealanders to buy houses.
This might solve problems such as our high levels of immigration to Australia but I’m not sure if it will address the bigger issues with our economy. Even if the government absolutely flooded the Auckland market with houses and managed to bring prices down by, say, $100,000 to a median of $480,000, most first-home owners who bought a house would still be investing a huge proportion of their capital in it. They’d probably also be putting most of their disposable income into the mortgage. And the poorest New Zealanders still couldn’t afford warm, secure homes.
In fact, it seems that a better solution to the main economic problem caused by high house prices (“NZers are spending all their money on houses, not investing it in more productive things”) might be to:
- Change some of our tax laws to make investing in property less attractive
- Ask (or require) the banks to stop treating lending for housing more favourably than all other types of lending.
- Change some of our tenancy laws to make renting in New Zealand more attractive
I actually think this last point, number 3, is really important. I believe that many New Zealanders who are currently buying properties aren’t actually partially, or even mainly, motivated by financial reasons. Instead they are mainly motivated by the desire not to rent.
I have a lot of ideas about how the government could make renting in NZ more attractive but I’ll cover those in another post. Anyway, what do you think? What do you think is the main problem caused by high house prices in Auckland and what policies could we design to address that problem specifically?