The contrast between 1960 and today in terms of housing affordability is the result of a fundamental shift in policy. In 1960, decent housing for all was seen as a social responsibility to be discharged by the community through its government or through co-operative arrangements. Today, confidence is reposed in the market to achieve this same outcome.
The evidence as to which is the better approach is surely conclusive; the market has - in this respect at least - failed. But, says the Government, that is not the fault of the "free market" (which ideology asserts is infallible), but rather the consequence of "rigidities" which stop the market from operating as it should.
The argument is the same as that used to explain why the market has produced an historically high rate of unemployment. The reason for this, we are told, is that "labour market rigidities" preclude a low enough price of labour to clear the market.
In the case of unemployment, in other words, the fault is said to lie with the trade unions, notwithstanding their "small influence" - described by the Prime Minister as a principal reason (together with a tax gift of $67 million) for Warner Bros deigning to come here to make The Hobbit.
In the case of affordable housing, the villains are supposedly the local authorities. Again, the Government - and "free-market" theory - cannot, it seems, be blamed. In both cases, not only does the Government deny responsibility but they have conveniently found a scapegoat in those who do not share their political view.
Abandoning the effective planning of land usage, however, so that developers were free to go wherever and do whatever they liked, might stimulate a short burst in property development and building activity, but is unlikely to bring down the cost of housing in the long term. Much more likely would be a surge in the profits made by both property developers and banks - both significant elements in pushing up the cost of housing.
The very term "property development" gives the game away. The development value of land, which is almost entirely produced by the wider community's success in building new communities and local economies, has been siphoned off into private pockets.
An even more significant factor has been the increasing role of the banks in financing house purchase. With the replacement of mutually owned building societies by profit-making banks, the whole nature of lending for house purchase has changed. The banks make most of their money from lending on mortgage. Its appeal is that it is risk-free lending, with houses providing real and immovable assets as security. It is in the banks' interests to go on lending ever more; they thereby apply in effect a huge pair of bellows to the housing market.
The huge increase in the money supply caused by inflated bank lending for non-productive housing, moreover, seriously skews the whole economy. It diverts investment away from productive investment and into housing and creates an asset inflation problem which we choose - unbelievably - to address by raising interest rates so that productive investment becomes even less attractive and housing yet more expensive.
It is encouraging to note the first glimmers of recognition of this issue in the Reserve Bank's contemplation of "macro-prudential" measures to restrain bank lending; but their emphasis is still on the health of the banks' balance sheets rather than on the distortion of the macro-economy. And, as on so many issues, the Government's loyalties seem to lie with its business and corporate backers, rather than with families and children in need.
Bryan Gould is a former vice-chancellor of Waikato University and British Labour MP.
