In 2016, Green Party co-leader Metiria Turei argued that Auckland residential property prices needed to drop 50%, returning housing affordability back to the early 2000s. Condemnation from National and Labour came swift and fast. Turei had breached one of the unspoken taboos of New Zealand politics.
For nearly 20 years, the Helen Clark and John Key governments maintained a sustained property bubble to generate the illusion of prosperity in an economy that was stagnating relative to the rest of the OECD. This made them popular with middle-class property owners: both governments won three terms. But it was wrecking the social and economic fabric of the nation, and mentioning this was the height of rudeness.
Our long residential housing boom was engineered via a combination of market regulation to restrict supply and high immigration to boost demand.
It was funded via heavy private borrowing from the Australian banks as we paid ever higher prices for the same properties. The madness reached its peak under Jacinda Ardern and Grant Robertson, with Ardern indicating a desired target of 4% price growth a year. But in 2021, the combination of Covid stimulus and 0.25% interest rates fuelled a 30% increase in a single year.
Prices have declined since then, and now Housing Minister Chris Bishop has declared they need to keep coming down. He’ll achieve this by deregulating the residential construction sector, making it easier to build, and thus “flood the market with opportunities for development”.
Some of Bishop’s arguments follow the same line as Turei’s: the supply constraint inflicts enormous suffering by forcing families to live in overcrowded homes, cars, garages, emergency housing and, increasingly, the streets. It also entrenches poverty: renting households pay the highest rents in the OECD.
He also points out the economic gains from bursting the bubble – high-productivity economies have large, dense cities – and the enormous cost of the status quo: the government spends $5 billion a year in housing assistance, $20b over the four-year fiscal window – which Bishop protests “equals 15 Transmission Gullies”. (You can imagine him being overcharged for coffee at an airport: “Eight dollars for a long black? That’s one hundred and sixty-two thousandths of a Transmission Gully!)
Christopher Luxon likes to refer to his government as a “turnaround job”, taking a plucky but dysfunctional South Pacific nation and chunking its big rocks to maximise vertically integrated value propositions and set it back on its feet. Bishop’s housing policy is the best evidence we’ve seen of a genuine change in economic direction – but it faces many challenges.
VESTED INTERESTS
The fast-track legislation and now housing deregulation are mechanisms for the government to impose its will on local and regional councils. There are valid reasons for this – councils are prone to capture by vested interests who prefer not to build – but it conflicts with Luxon’s endlessly repeated belief in “localism”: the conservative doctrine that communities are better placed than central planners to make decisions.
This top-down approach amplifies the other grand tension between central and local government: infrastructure and who pays for it. It’s all very well for Bishop to tell Auckland it needs to release 30 years of land for new development and eliminate its urban-rural boundary, but as he strides the land like a colossus, sprinkling thousands of townhouses and mixed-use residential and commercial zones in his wake, someone will have to finance the roads and pipes.
Auckland Mayor Wayne Brown’s response to the announcement was a menacing snarl. “There’s no sign of any money, just a whole lot of instructions … Aucklanders don’t appreciate a dump like Wellington telling us how to live,” adding forebodingly, “it’s a way to get a single-term government.”
WE’RE WORKING ON IT
National is working on the funding problem: Luxon mused about returning the GST on council rates, and Act has long campaigned on a proposal to return some of the GST gathered from construction back to local government – which incentivises it to plan for growth. Bishop seems to lean towards this option and has indicated he’ll have a solution by the end of the year. Either proposal might transform the mayor’s twisted grimace of fury into a twisted grimace of joy.
Finally, there’s the $1.6 trillion problem of the residential property market. For more than 30 years, hundreds of thousands of middle-class New Zealanders have followed the policy signals sent by their governments and invested the bulk of their retirement savings in housing. They’d have been foolish not to: it was an investment class delivering untaxed gains and it always went up. If Bishop has his way, the primary assets of a huge number of voters will continue to decline.
From a macroeconomic perspective, this is a necessary evil: the painful unwinding of the cynical vandalism inflicted during the Clark-Key-Ardern era. Property values are down this year while most KiwiSaver returns are up: that’s how a healthy economy is supposed to perform – but many voters will see only that kindly Ardern increased the value of their villa by half a million dollars, but the horrible Chrises, Luxon and Bishop, want to take that all away.
There’s a shaky consensus across much of Parliament that housing reform is needed and that it will look something like Bishop’s policy suite. The Greens and Labour might want more densification and fewer developments on urban-rural boundaries – but the differences are at the margins.
That consensus might not hold: if swing voters feel impoverished by a flood of new housing, it will require a level of political discipline hitherto unseen in our political class to avoid caving in to their demands. Luxon’s great turnaround might yet get turned around again.
