Damien Grant: Housing game rules are rigged to suit owners

Malpass and Bassett argue that the housing market is rigged in favour of those already in the game at the expense of those struggling to buy their first home. Photo / File

Opinion

The extent to which the housing industry is being distorted by those with a vested interest has been elegantly explored by Michael Bassett and Luke Malpass from Wellington-based think tank the New Zealand Initiative.

In a recent publication, the authors say the glory days of house construction were in the 1970s, when up to 8 per cent of the population was directly or indirectly engaged in house construction. In 1975, 34,000 new dwellings were constructed. The State was indirectly involved in the market by virtue of easy credit for people looking to build new homes. In 1979 the Muldoon Government extended this facility to existing houses, and the throttling of the housing industry began. Other factors have also intervened to make houses more expensive. Homes are now larger, with the average floor area nearly doubling to about 200sq m since 1974. They are built to higher specifications and we increasingly prefer to design bespoke homes.

Bassett and Malpass have also identified three key drivers of our current malaise. First, Auckland's metropolitan urban limit has strangled the supply of new land, increasing dirt as a percentage of the build price of a house from 40 per cent in 1995 to 60 per cent today. Less than than 1 per cent of the country is built up - the idea of urban sprawl is a myth.

Second, the 2002 Local Government Act compelled councils to consider the social, economic, environmental and cultural factors in town planning. They did, adding extra staff to regulate construction almost out of existence. Building a new house became expensive and unprofitable. Auckland needs 13,000 new houses and the over-regulated industry struggles to churn out 4,000.

Third, property owners are now making the rules - they have an interest in protecting the value of their assets. Malpass and Bassett argue that the housing market is rigged in favour of those already in the game at the expense of those struggling to buy their first home.

It is also tilted away from the construction of cheap houses for the urban poor towards larger builds where the returns are better.

Data from the Department of Building and Housing shows the shortfall in construction relative to demand will continue for at least another decade. The effect of this is to impoverish the young and poor, and enrich the old and wealthy.

This is great news for those who own property and have seen their personal wealth increase dramatically in the past two decades. These people make the rules: do not expect a snowman to vote for summer.