Opinion: Money for mortar is our issue

We hear a lot about the "housing crisis" in New Zealand, especially the shortage of affordable houses in Auckland that is pushing a generation of would-be home buyers out of the market. But is the underlying problem really a critical shortage of housing? House price inflation in Auckland, and the spillover to the regions, is an issue of supply and demand " but it's not the supply of housing stock that is the main problem. The real culprit is the easy supply of money.

New Zealanders have a love affair with owning property and the banking industry reforms of the 1980s and '90s allowed many to buy second and third properties. Deregulation meant banks had more money to lend and access to funds became easy. Punters had more cash to spend on housing - so they did.

Before the 1990s, most New Zealanders had mortgage financing from the Housing Corporation and it was generally not possible to have more than one mortgage. As the new millennium dawned, people who had been burned by the stock market in 1987 invested in property and relied on capital gains to see them right. In 2010, after recovering from the finance company debacle and the global financial crisis, they again turned to investment in residential property with a vengeance.

It is worth pointing out that housing cost in Auckland as a percentage of household income has only increased from 16.8 per cent in 2007 to 18.8 per cent in 2015; although it is lower in the rest of the country. There is also evidence from government and private sector reports that high rents are causing a higher incidence of homelessness and residential overcrowding in Auckland.

Our two largest political parties are responding to these events in similar, but equally useless, ways " in essence by throwing bricks and mortar at the problem. Both are claiming it's only a housing supply problem. Labour is getting "back to its roots", announcing a large building programme to provide low-cost housing to those wanting to get into home ownership. National, on the other hand, is tinkering with KiwiSaver entitlements and offering a billion-dollar interest-free loan to councils. History tells us both are attacking the problem from the wrong direction.

House price inflation is nothing new

In the 1930s, the Labour Government went on an extensive house building programme. While this increased New Zealand's housing stock, house prices increased, too. Following World War II, both Labour and National actively encouraged home ownership and, again, house prices went up. Then came the neo-liberal reforms of the 1980s which reformed our banking system and changed the way we buy houses.

If you examine Quotable Value and Reserve Bank data from 1980 to the present, recent rises in house prices appear spectacular. But house price inflation of this scale is not new to New Zealand.

Don't focus on the symptom; deal with the underlying cause

In total there have been six occasions in New Zealand when house price inflation has peaked above 15 per cent - it reached 37.1 per cent in 1982, 21.7 per cent in 1987, 24.1 per cent in 2003 and also breached 15 per cent in 1985, 1994 and 2005. Both Labour and National seem to be blaming house price inflation on immigration and investors - this kneejerk bricks-and-mortar approach to the problem argues that supply cannot keep up with the demand created by these two groups.

The current focus on house prices looks only at a symptom of the problem. The real debate needs to move to the underlying causes - and they are not simply the supply and demand of the buildings. Instead we need to assess the impact of the banking policies of successive governments and the expectation of New Zealanders that they will own a house surrounded by land.

In isolation, building more houses is not a long-term solution - the crisis is not a simple shortage of houses; it is a crisis of critical debate.

- Dr Andrew Cardow is a senior lecturer in the School of Management and Dr William Wilson is a senior lecturer in the School of Economics and Finance at Massey University.

- Views expressed here are the writers' opinions and not the newspaper's. Email: editor@hbtoday.co.nz