Three Questions for Labour on their Housing Policy

Geoff SimmonsEconomics

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
About the Author

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.