Bryan Gould: Housing consensus ignores poverty and peril

That crisis demands the fastest possible solution. That will not be achieved by firing the starting gun for another round of property development. Photo / Greg Bowker

So, now we know. The two major parties agree the homelessness and unaffordability crisis has arisen because the market has not been allowed to function properly. It seems that the Auckland Council, in a misguided attempt to prevent urban sprawl, has restricted the supply of land with the result that prices have risen. With the council cast as the villain, it looks as though the Government can celebrate getting off the hook " but whether the consensus is in Labour's interests or those of the homeless is less obvious.

The Greens have a different take. For them, it seems, the pressing problem is the one that has been hogging the headlines " the plight of that growing number of Kiwis, in Auckland and elsewhere, who literally have no home, no washing or toilet facilities, no home comforts, nowhere to relax at the end of the day, nowhere to call their own.

That crisis demands the fastest possible solution. That will not be achieved by firing the starting gun for another round of property development.

The crisis has arisen because we have not been building homes for that significant sector who simply cannot afford either purchase prices or rents " those who are completely overlooked by the market.

Our decade-long failure to concern ourselves with this group of citizens can be remedied only one way. We must have a publicly funded building programme of decent houses at reasonable rents in the areas where they are needed.

How is that funding to be found? It depends where our priorities lie, but a decent start could be made, as the Greens suggest, by desisting from treating Housing New Zealand as a cash cow - extracting more than $100 million a year from the poorest people in our society to pay to the government - instead using it to finance a building programme.

But, it will be argued, homelessness is only one aspect of a malfunctioning housing market. It surely stands to reason that an increase in the supply of housing will help to resolve the separate problem of unaffordability by bringing prices down? Isn't the National/Labour cross-party consensus right on the money?

It is certainly true that property developers, the banks and speculative investors all love the idea " I can hear them salivating from here.

Any concept of sensible planning and land use, any concern for interests such as our important horticulture industry, any reckoning of what further urban sprawl would mean in terms of infrastructure costs and longer travel distances is swept aside.

Supporters of the consensus have little patience with these concerns. The market, they say, must be allowed to operate. The housing market is like any other market, and rigidities must be removed so that it produces optimal results.

But the housing market is not like any other market. There is no other market of any size where purchasers are armed with a purchasing power up to nine times higher than their annual incomes, where recent experience shows they can expect huge, untaxed capital gains, where speculative investment using borrowed money can virtually guarantee a huge return " all because house prices go on rising and banks go on lending.

Economists may warn about all the signs of a rapidly inflating bubble, but those responsible for the inflating are not to be deterred.

As the consensus promises to provide yet wider opportunities for profitable investment, property developers stand ready to bid up the prices of the newly available land, the banks stand ready to lend virtually without limit to both the developers and the eventual purchasers of the new houses, and the inflow of new lending and credit into the housing market ensures the bellows applied to housing prices will continue to blow fiercely.

As another round of house price increases is generated, the gap between those who are in the housing market or who are able to borrow, and those who are not and cannot, grows ever wider.

The diversion of yet more of the country's finances into speculative rather than productive activities leaves us even more dangerously exposed to the risk of a bubble that one day is certain to burst.

Debate on this article is now closed.

Bryan Gould, a former Labour MP in Britain, grew up in a state house in Hawera.