New Zealand’s Rack-Rent Housing Crisis, Part Three: Political Precommitment
The end of the John Key government was marked by a desperate scramble to reverse housing policy settings. Media reports showing homeless families living in cars shocked the nation. As a stop-gap measure, the homeless were housed in motels. The former prime minister was forced to contend with the consequences of his earlier housing attention being focused on middle-income earners and his assumption that building social housing was economic vandalism, when in fact housing as a human right was the political necessity.
Governments are obligated in the last resort to provide affordable housing. The call to action — to build houses — becomes overwhelming when the public is exposed to images, videos and personal accounts of homelessness being a growing systemic problem.
Housing as a human right is something many countries are struggling with. This problem is particularly acute in New Zealand because, as detailed in the paper New Zealand’s Rack-Rent Housing Crisis, Part One: Political Constraints, rent as a proportion of income for the lowest 20% of income earners is the worst in the OECD.
The government is still housing homeless people in motels. A post-election briefing to ministers (P.9) indicates 6300 motel units are being used to house individuals, families and whānau; this might be doable in the middle of a pandemic but in the long-term motels are better used for tourists than for permanent housing. And while signs look good for the resolution of the Covd-19 pandemic in 2021, it is not clear if the government’s housing solutions for the low-income end of the housing continuum will have much impact or even what the housing targets are.
New Zealand has taken the economic opportunity of its world leading response to Covid-19 to bid up house prices.
By November lower quartile house prices reached $541,000, meaning it had increased by $95,000 since May, a 21% increase in six months. Interest.co.nz figures show “the rate at which house prices have increased over the last six months has not only erased the benefits of lower interest rates. It has also eaten up the increases in wages over that time”. Because the rental market is so tight it is inevitable that rents will also continue to inflate faster than wages. Meaning non-property owning workers and businesses will not benefit from doing the hard-yards during the Covid-19 lockdown.
The property owning ‘haves’ have taken all the economic opportunity leaving nothing for the ‘have-nots’.
My previous paper Who are the Jedi Knights of Housing Affordability argued both local and central government politicians have failed on housing for so long that they lack the credibility to fix affordability by themselves. As is widely discussed in the media, the rational course of action for existing homeowners is to leverage up investment in housing because the actions of New Zealand’s leaders show they will not allow house prices to fall. The siren call of the one-way housing bet comes at a tremendous cost to the country’s social fabric, yet it is how New Zealand is responding to the current economic situation.
The Jedi Knight paper advocated for a housing accord to bring all the major players together and for a housing commissioner to provide long-term housing affordability direction through specific tools and targets. In effect, this would make the implicit obligation that governments treat housing as a human right explicit.
The book Ulysses and the Sirens by Jon Elster provides the theory for why governments at times use independent entities to solve difficult political problems like the housing crisis. Elster developed a theory called precommitment which he applied to the domain of politics. He asserted that direct democracy tends to reverse its own decisions and to display inconsistent preferences over time — that democracy can be “incontinent, vacillating, and inefficient.” Based on this, Elster argued that certain institutions in modern democracies may be considered precommitment devices. A democratic electorate may bind itself as a way of “protecting itself against its own impulsiveness.” The establishment of central banks, he argues, can be interpreted as an act of precommitment on the part of an electorate seeking to pre-empt the impulse to meddle with interest rates.
If the electorate decides that precommitment is needed to address the housing crisis a housing commissioner could be given the following targets, in order of importance.
- That rent is less than 30% of income for the lowest income groups
- That house price inflation be slower than wage increases
- A stable housing market that does not destabilise the wider economy
And the following tools:
- The ability to direct an increase in public housing placements where and when needed
- To purchase and release land as needed (probably releasing land to Kainga Ora)
- And the power to review planning regulations, by creating, directing, and appointing Independent Hearing Panels
These precommitments would in effect mean affordable housing becomes a universal public service for whānau, much like free education is for children and superannuation is for the elderly.
The precommitments could not be undermined by inconsistent positions held by political leaders, the vagaries of the various involved government departments and local government, or by private investors believing housing is a capital gains investment commodity rather than homes being shelter — a basic human need.
Going forward there would be political consistency, too. The housing commissioner’s targets and tools would outlive individual governments. Of course, like for other commissioners and the reserve bank governor, the government of the day has influence by appointing who takes up the position and the government can alter the targets and tools as they see fit. But these changes would be public decisions that would occur in an honest and transparent process.
Precommitment would mean public expectations about housing inflation, like general inflation, would be controlled as inflation would essentially be ‘tied to the mast’. It is unlikely that once the government and the public see the benefits of a consistent housing position that it would untie itself.
Giving the housing commissioner the power to direct independent hearing panels to review RMA district plans (or any subsequent planning legislation), or to increase public housing placements where and when needed — which would come at taxpayer expense — would also be good for transparency and honesty. It would expose the social cost of NIMBY objections to new housing, whether that be inner-city youth mental health accommodation, suburban infill housing, or building apartments along high-frequency public transport corridors.
If certain sectors of the public insist on vetoing private sector housing options, then more public housing would have to be built at the taxpayers’ expense. Like schools, the housing would be built where it is needed — near employment and near amenities such as educational and healthcare facilities. These are likely to be in the same urban environments that objected to private sector housing being available and affordable through the planning process.
Applying precommitment to housing would bind all sectors of society to the mast — central and local government and the public in general. Greater consistency, honesty, and transparency would be the consequence. This would be a good thing for New Zealand.
Finance Minister Grant Robertson has said he will “spend some time over the summer looking at the full package of how we’re going to deal with housing as an issue.” Hopefully, he gets to the heart of matter rather than playing around the edges.