Crony Capitalism in New Zealand

New Zealand’s housing crisis and its inadequate response to it, exposes a dark morally corrupt underbelly in New Zealand’s society. New Zealand has a problem (perhaps common throughout the world) where policy which regulates marketplace outcomes benefit an existing wealthy group at the expense of the less wealthy and the economic opportunities of future generations.

This is the inescapable conclusion of how New Zealand has addressed the housing crisis in the last 10 years.

In 2007 house prices in New Zealand had grown rapidly for some time. There was a well founded public perception that houses were becoming unaffordable. The incoming National government campaigned on fixing housing affordability.

John Key discussing Housing Reform 2007, before getting elected in 2008

Since 2008 New Zealand’s largest city -Auckland has experienced a doubling in its average house prices. The usual supply and demand response -something that current Minister for Building and Construction Nick Smith has stated he believes in -would be for an increase in quantity supplied to bring down prices. That would be the free market in action.

Yet by the year to June 2016 Auckland was only consenting 6 new houses per 1000 residents compared to New Zealand’s fastest building region -Canterbury, where 11 houses were being built per 1000 residents. Canterbury had a genuine supply response following the earthquakes of 2010 and 2011. Perhaps reflecting that Canterbury was well insured and being a smaller city on a large plain faced fewer infrastructure constraints.

Currently Auckland is growing by 40,000 to 45,000 people a year and it is building somewhere between 7,000 (code of compliance) and 10,000 (consented) houses a year. That works out at 4+ people per house and the current housing occupancy rate in Auckland is 3. So clearly Auckland is not building enough houses to address issues like homelessness/ families living in cars/ the explosion in the numbers getting emergency accommodation.

Auckland has not had a supply response to make house prices affordable as standard economic theory -supply and demand indicates should happen. This means there is some sort of regulatory/structural failure in Auckland’s housing market.

The government was aware of the structural problems in the housing market as early as 2010. The current Prime Minister -Bill English (he replaced John Key in 2016) and then Finance Minister was predicting a housing crisis by 2015/2016. Yet the government lacked the political will to make sufficient changes to the structural problems affecting supply or demand in the housing market.

Radio New Zealand reported this news today -the 8th of June 2017.

“Bill English said privately seven years ago a housing crisis was looming in Auckland, a senior Salvation Army official says.

Major Campbell Roberts said in 2010, Mr English -then finance minister -told him he feared a crisis on the horizon…… “

Why did the government lack the political will to fix the structural problems in the housing market? Well it is not complicated -John Key told the New Zealand public in an announcement in 2012 on housing affordability that the government’s housing reforms would be slow because, “I don’t think that New Zealanders who own their own homes would thank us if we took action which would devalue their most valuable asset….”.

This condition on housing reforms has been repeated on many occasions by the Prime Minister and various other Ministers. It is clear that the government was so scared of the risk of house price falls that this stymied the introduction of effective housing reforms. Which perversely has led to greater price increases and therefore the risk of greater price falls in the future.

That is the explanation for why the government’s housing reforms have been too little and too late. New Zealand’s leaders in government lacked political will.

This lack of political will is why house prices in Auckland doubled and why more people are homeless than ever before.

This is the reason why so many beneficiaries in 2016 were borrowing thousands of dollars a week to stay in motels as emergency accommodation.

This is why in 2016 foreign media filmed New Zealand working families sleeping in cars in Auckland.

All of this pressure is the reason why by the last quarter of 2016 the government granted emergency accommodation for free. This led to an explosion in number of people in emergency accommodation.

December quarter 2016, Emergency Housing Special Needs Grants

But short term emergency accommodation is the ambulance at the bottom of cliff. It is not a solution to unaffordable housing. It provides temporary relief but does not cure the housing crisis.

Choosing not to fix the housing crisis is a morally corrupt choice because it places the interests of wealthy existing homeowners above those that are struggling in the rental market or falling off it into homelessness. It chooses to benefit current homeowners over the aspirations of future generations of homeowners.

New Zealanders are polite people, we don’t like to complain and make a fuss. This has advantages -it helps us cope with those things in life we cannot change. But some things -like housing -can be changed and in these cases our national trait of not making a fuss is a disadvantage. When our leaders make poor decisions, when their decisions have evil consequences we should make a fuss and call them out.

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A collection of essays about cities, housing, land, the built environment and transport which collectively make the case for New Zealand to implement a wide ranging urbanisation project

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Brendon Harre

Brendon Harre

Trying to optimise amenity and affordability values for urban areas

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