Three Questions for Labour on their Housing Policy

Geoff SimmonsEconomics12 Comments

Labour’s housing policy hit all the right political notes; more social housing, more affordable housing, a tax-based rap over the knuckles for all those ‘nasty’ investors and of course a ban on foreign buyers. The question is can they deliver?

We’ve previously talked about how a capital gains tax (even if it is called a ‘bright line test’ instead) won’t solve the housing bubble, a Comprehensive Capital Income Tax is needed instead. We’ve also discussed how difficult it is in practice to exclude foreign buyers in a modern open economy. As far as the new policies go, delving into the detail raises more questions than answers.

Who gets the “affordable” houses?

It sounds great in theory; 10,000 new affordable homes delivered each year. The basic idea behind how they would be delivered is sound too. The developments could be done at scale, without private developers creaming the profits. We also know that in Auckland private developers would rather build expensive 3-4 bedroom homes than the modest, 1-2 bedroom ones people actually need. So on the face of it, there is no reason to believe Labour couldn’t deliver on their plan.

The trouble is, once you have built an affordable home, how do you make sure it stays “affordable”? The only way to do that for certain is by keeping it in public ownership and renting it out, which given our national obsession with home ownership isn’t a political winner. As soon as you put the houses in private hands, they can be sold at the market rate so there is no guarantee they will stay affordable. Even if the people you sell it to live in it for a few years, when they come to sell it they may have realised a massive private gain. Effectively Labour’s policy is handing a massive win to 10,000 lucky people a year – so how you choose those people has very important equity implications.

What will you do about the NIMBYs?

Truly affordable homes are close to the centre of town – we know that sprawl creates cheap houses but they usually end up being more expensive once the private and public costs of transport are taken into account. The big barrier to inner city development is the people that resist medium density development in their back yard; otherwise known as NIMBYs. What will Labour do about them?

The long awaited Auckland Unitary Plan will appear later this month. If the problem is not solved there, it looks unlikely to be solved by the Government’s National Policy Statement either. That document merely forces Councils to make land available in areas where house prices are much higher than incomes. Without dealing with the NIMBY issue head on, the opportunity for truly affordable housing will be lost. Of course, this means standing up to a very loud, affluent, mostly elderly group of voters, which no politician likes to do.

Why does Government have to do it all?

The final question for Labour is why does the Government – through Housing NZ, Kiwbuild and the proposed Affordable Housing Agency – have to do it all themselves?

If the NIMBY problem discussed above were solved, it would be far more possible for the private sector to build more medium density housing; i.e. terraced houses or apartments. That would make a massive difference to the availability of affordable housing, without the government having to get into the risky business of doing it themselves.

Another tool that could be used without government involvement in building houses would be to regulate to ensure that private developers have to provide social and/or affordable housing as part of any development. We are seeing this happening in Auckland now, but it could be expanded.

If those changes weren’t enough to deliver the goods, there are still other options for delivering affordable housing without government having to build it. In many countries overseas, social and affordable housing are delivered by cooperatives. Why not build and empower the cooperative sector to deliver their goals? There are two advantages to this approach.

Government funded organisations can always be cut or tinkered with by politicians. All it takes is a change of government for policies to change. On the other hand stand-alone, sustainable cooperatives are far more capable of delivering social and affordable housing consistently on an ongoing basis. They are less at the mercy of the changing whims of government.

The second advantage of cooperatives or voluntary organisations delivering social housing in particular is that they can be better able of delivering a variety of services than government. We have seen in the UK that non-for-profit housing associations have lower eviction rates and higher levels of tenant satisfaction than government or Council providers. Having non-government, not-for-profit organisations delivering social housing at scale has also proven to be an effective way to deliver wraparound holistic services for families. They can help make the vision of projects like Whanau Ora a reality.

 

Three Questions for Labour on their Housing Policy was last modified: July 11th, 2016 by Geoff Simmons
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Geoff Simmons

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Geoff Simmons is an economist working for the Morgan Foundation. Geoff has an Honours degree from Auckland University and over ten years experience working for NZ Treasury and as a manager in the UK civil service. Geoff has co-authored three books alongside Gareth.

12 Comments on “Three Questions for Labour on their Housing Policy”

  1. And wont this idea of theirs just force rental prices up. Also what cost will this be to the taxpayer. If the problem is so big, then why cant all the parties get together, and sort out a plan, which can be put in place, and not be affected by, or dumped by the next Govt elected down the track. Seems like political point scoring at the moment, and nothing more.

  2. Nice post. I would have emphasised land supply a bit more. I think someone tweeted that labour is simply creating 100,000 renovation opportunities.

  3. Great article Geoff. l think there needs to be more discussion on infrastructure and how a larger Auckland might look.
    Do we want future transport to be dominated by cars or replaced by something more sustainable. And would we like
    our city to remain one of the most liveable cities in the world or continue the urban sprawl when satellite towns with high speed trains might help the city breath.

  4. How about the government gets 100% of capital gain over and above CPI inflation and that is put into more govt housing. That way paying off the house is how people will build REAL equity, not equity that is actually just debt on the next owner.

  5. I was raised in the Pepper Block of Whanganui East, mix of private and State of different styles sizes and apart from the poorly designed 2 storey semi detached pockets in a couple of cul de sacs it was a success until the ridiculous Ruth Richardson inspired changes criteria for getting a state house guaranteed Ghettoization. People lived there for 10 or so years and then tended to buy from the cheaper existing stock in other suburbs or build their own with lots of mate labour. Keep the standards high, support those who are battling, peg it to 30% of income, decant those whose kids have grownup by shifting them into private sector rentals or support them into own home.
    Defeat NIMBY by linking to transport hubs, ensuring private owner occupiers [not rentiers] get a share of the social and economic good created by good well managed Central Govt housing policy and improved amenities, well resourced schools etc. Redevelopment of existing quasi industrial or warehouse land as well as greenfield sites compulsory acquisition at market rates.
    With 4.5 million people we do not have the mass needed for private, co-op or Euro styles of agency to get this off the ground. The older, the younger, the new migrants the long term migrants, all recognize the importance for a philosophical shift to meet widely felt needs. A “Johnny come lately” National Party ” me too ” response cannot be trusted so these things have got to be locked up in Queen Elizabeth11 style permanent covenants.

  6. I the reason that Govt has to do it all, is that private sector can’t make money from affordable housing, so they wont. Classic example is Hobsonville Point – a PRIVATE company was given PUBLIC land and a large amount of cash, and somehow the social housing aspect of the project got shelved… now the wealthy can live near the harbour, the developers make a small (or large) fortune, and NZ is poorer having given away so much for NO return. As for NIMBY’s, again Govt has to manage them. They own a section, not a city, and hold far too much sway with council at this stage. Local and Central Govt need to stop pansying around and make things happen.

  7. Surely the situation requires a surplus of sellers over buyers. Immigrants aren’t stupid, they often don’t come with an expectancy of owning a house however, if it is common knowledge they can make a killing by buying, then they’ll do it (eg. Dubai) but if not, then they’ll be content with high density inner city living creating a market that is insulated from the ‘kiwi dream’. The price correction comes about either as a shock (which the government will cause by their inevitable unintended consequences), or more smoothly by making regions more accessible. Surely transport systems such as rail (and yes, even an overnight ferry service – wouldn’t that be fantastic!) have a big part to play. High speed trains (please keep in public ownership) should play a part. I hate to use the phrase but NZ needs to ‘think big’ but focus on local. It seems that global money has to flow in to NZ (JK should just focus on this and stop trying to be a NZ politician, he’s shockingly bad at it) but stop giving the incentives that aim it all at buying up small plots of land.

  8. If the NIMBY problem discussed above were solved, it would be far more
    possible for the private sector to build more medium density housing;
    i.e. terraced houses or apartments.

    ……
    In Christchurch it started with “the thing to do is buy a corner section, subdivide then you live in the new house for 6 months and you move on” after that we had the “flag” houses. Good architecture doesn’t happen unless building is being done for upmarket clients. Also a development needs a clean slate (as the Singapore government is able to do) otherwise the building will face the wrong way (or whatever way makes the developer the most money. NIMBY’s should fight tooth and claw.

  9. Hi Geoff, re the NIMBY problem (I prefer to call it the intensification/densification problem) particularly in Auckland, I’ve thought about using a Targeting Rate and just plain old market (i.e., not planning!!) mechanisms. In other words, do away with the need for all the sub-zones and planner determinations as to where intensification should/should not happen – and simply introduce a tax incentive, leaving the market to then sort it out. It would go something like this:

    The Targeted Rate would be calculated as follows:

    Distance Factor (of a residential lot to a main centre of employment)
    x
    Size of the residential lot in m2
    x
    Number of residential units per lot
    =
    Intensification score x a fixed dollar value (say $1.00 for ease of analysis)

    Where I increases with the inverse of the number of dwellings per lot rather than in proportion to it.

    So that’s: D x S x N = I x $1 = Targeted Rate

    Main centres of employment are broken down into Distance Bands (DB), where DB moves inversely with distance in km, not proportionally, say assign:

    A factor of 1 for all distances >30 kms
    A factor of 2 for all distances between 29.9kms and 20kms
    A factor of 3 for all distances between 19.9kms and 10kms
    A factor of 4 for distances between 9.9kms and 5kms
    A factor of 5 for distances < 4.9 kms

    Main centres of employment are also broken down into Number Employed (NE) bands, where NE increases with the numbers employed; say assign:

    A factor of 1 for main centre employing <250 people
    A factor of 2 for main centre employing between 250 and 999 people
    A factor of 3 for main centre employing between 1000-4999 people
    A factor of 4 for main centres employing more than 5000 people

    Where D = DB x NE in the above.

    Size of the residential lot in m2 – Use the raw lot size as the factor

    Number of residential units per lot

    A factor of 5 for a single unit dwelling per lot
    A factor of 4 for a two unit dwellings per lot
    A factor of 2 for a three-five unit dwellings per lot
    A factor of 1 for 6+ unit dwellings per lot

    What the $ value needs to be would be determined by just how much of an incentive for densification one wants to provide via the targeted rate. You then need only one Residential Zone – along with a height to boundary rule – and mutli-unit complexes might start popping up everywhere. Point being, those close to the main centres enjoy all the benefits of the concentration of public infrastructure (universities, libraries, museums, hospitals, CG HQs, LG head offices, etc.) but don't pay the requisite rates/tax associated with their enjoyment of those benefits. It's a kind of more equitable land tax on those close to centres of employment (and hence centres of public infrastructure concentration).

    It needs GIS modelling – as I have no idea whether the numbers I've proposed would do the trick. But, you'll get the idea.

  10. “there are many People living Alone So Only Need One Bed roomed Home Simple kitchen,Dining,Lounge Open plan style. With Toilet/Shower,Sink area They Could Be built around an open park With Area of Bush Kowhai,Puriri,Pohutukawa Etc Private developers Hire Lobbyists to Work on Government ministers. ..They are often the Biggest Bludgers They Put up the rent To Make a Better return on the Investment. People on a Benefit Have to Get Accommodation Supplements or Temp additional Support To Go Direct to Land Owner Via the Beneficiary Bank Account ..To Cover the Excessive Prices ., The Basic Benefit Does Not Cover The reality of “Market rent” Which is “charge as Much” as the “Market” Can Afford to pay.. An Empty House is Going Up in Value But Tenents are Good to Cover Mortgage ,and Rates, plus Bonus for Investor..

  11. How to cut the cost of State Housing?
    Developers should have to set aside approximately 8 percent of their sections for state housing in the same way that they have to make a reserve contribution now. This would have the benefit of spreading state housing around rather than concentrating them all in one place. They will still make huge profits even with this requirement. And cut the cost of social housing.

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