1. Governance
November 16, 2017updated 19 Jul 2021 9:45am

New Zealand has a worse housing crisis than the UK. So what’s its new Labour government going to do about it?

What first strikes you about advertisements seeking flatmates in Auckland is how old the pre-existing occupants are. Encouraged by the spectacular demand for housing in New Zealand’s largest city, these mini-gerontocrats’ advanced years make them demanding cohabitees. Arriving in Auckland to take up a job with the opposition New Zealand Labour Party and beginning my search for a room, I encountered the quotidian bans on loud music, but also more esoteric promulgations on the acceptable times to fry an egg.

in Auckland, where a third of New Zealanders live, the housing crisis is even more acute than in London. The median house prices to median income ratio is, amazingly, higher. Nationally – the picture is likely to be worse in Auckland – 75 per cent of under 40s rent. (In London, it’s about 45 per cent.)

Private sector rents in the down-at-heel south of the city are comparable to cheaper parts of London, but here the housing stock is especially poor quality, and basic amenities are often lacking or prohibitively expensive.

This crisis was at the very top of voters’ minds when they elected a Labour-led government last month. One in three Aucklanders felt it was the single most important issue of the election. Notably – and, a cynic might add, of importance politically – concern was as high amongst the over 50s as the under 34s.

Labour has a bold plan to build 100,000 new homes in ten years: more on a per capita basis than UK Labour promised in its 2017 manifesto. Bolder still, in Auckland, where half the new properties are to be built, homes will sell at about half of current average value.

So how, and crucially, where, will these houses be built? And how will they be so cheap?

The policy most admired by the British left is the ban on foreigners buying existing property. This is expected to have an immediate effect on prices at the top of the market, and to ultimately redound throughout the market.

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It is probably the only policy aimed squarely at reducing prices. But the effect of foreign buyers on prices is probably overstated; in both Auckland and London, foreign buyers account for under 5 per cent of property transactions.

The other major demand-side intervention is the plan to reduce migration by up to 40 per cent. The effect of migration on house prices is of course hugely contested. Some say the relationship is more correlational than causational – a strong economy both attracts migrants and makes house prices rise. For what it’s worth, a study commissioned by the previous government found the effect to be small, but the central bank found that a 1 per cent increase in population due to migration led to an 8 per cent rise in prices over the following three years.

Even if the reduction in new arrivals does significantly reduce prices, it may also have a deleterious effect on the construction industry, which needs a further 30,000 workers over the next two years. Combined with the planned rise in the minimum wage, this cut to migration could in fact push up house prices.

Even if prices fall (and a surprising number of homeowners favour this), such an outcome is not without risks. Britain’s trade deficit is made just about manageable by foreign direct investment in property, which includes behaviour such as foreigners acquiring construction companies. New Zealand, even relative to its much lower GDP, has a smaller, and declining, trade deficit, so could probably tolerate the reduced FDI falling property prices would result in.

However, as in the UK, pension funds are heavily invested in property. Moreover, the wealth effect – the phenomenon whereby homeowners spend more freely when they feel their property is worth a lot – applies as much in New Zealand as anywhere.

On the supply side, one might expect New Zealand’s proportional electoral system to result in less NIMBYism, but this is not the case. During the campaign, Labour was rightly accused of hypocrisy for opposing significant developments within already built-up areas. Instead, Labour promised to abolish the Urban Growth Boundary, which is similar in design to the UK’s green belts.

In reality, the UGB has been vitiated over recent years. It is perfectly possible for developers to obtain consent for large projects outside the boundary. In London, the Green Belt’s force – and expectation of its continued stringency – is revealed in the ratio of residential land value to green belt land value, which can be up to 100:1 for neighbouring plots. In Auckland, a 2007 study estimated the ratio to be around 10:1, but, as I say, the UGB has been substantially attenuated since.

This ratio shows two things. First, investors surmise, quite reasonably, that the restrictions may be further diminished in the future. Second, properties far from the city centre – whether inside or outside the current boundary – are not, or are not expected to be, especially sought after.

Herein lies the nub. Auckland’s transport infrastructure is appalling. About 50 public transport trips per person per year are made in Auckland – versus 1,000 per person per year in London. Without major improvements to infrastructure the very outer fringes of Auckland will not be desirable.

So building upwards, not outwards, in what is a reasonably sparsely populated city is the better option. Labour ducked this fight at the election, but soon it must be had. The evidence is that densification to a point improves cities: it makes public transport investment more effective, it encourages cycling and walking, and it enlivens high streets. Urban sprawl achieves the opposite.

I expect that Labour will fall short of its lofty aspirations, but, in raising housing to the top of New Zealand’s political agenda, the foundations have been laid for more forceful interventions in the future. If, over its forthcoming three year term, the crisis is not significantly ameliorated, the party will face siren calls on its left flank for interventions such as rent capping.

My message to those people is also my message to Auckland: grow up.

Kieran O’Halloran is a former New Zealand Labour Party Staffer.

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