Economist Brian Easton examines our housing stock situation and stresses the need for a good, comprehensive data base

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

This is adapted from a paper I gave to Southland U3A on Friday, February 17. Later I shall post a column which will analyse housing bubbles.

One of the key elements of a housing market – what makes it special and complex – is the time dimension. I warn you that we economists have a lot of problems analysing time, but so does everyone else – perhaps we are more aware of our ignorance.

First, a time dimension comes from people wanting to live in a dwelling for a long time. It would be very inconvenient if we had to move as often as we eat. It would also be very expensive. A rough estimate is that by the time you have paid all the bills – to real estate agents, valuers, lawyers, movers, and allowing something for for housing alterations and the like – you will have outlayed over $30,000 to change your house. So people tend to stay stuck in their houses.

Households need a form of tenure which provides some dwelling stability. For many that means home ownership. Most people accept that there should be some private ownership, including owning one’s house. It certainly has been a driving force in New Zealand’s evolution. At first the new settlers wanted to have their own farms; as New Zealand urbanised they wanted their own houses on their own land. A feature of New Zealand’s housing stock is that it is very varied – heterogeneous. Owners can alter and extend their houses.

There are at least two public advantages for home ownership. The first is that the owner, who is their own landlord, is likely to look after their property more than a tenant would. The second is that it requires home owners to pay off a mortgage, thereby forcing them to save. When a person starts work their main asset is their labour power; when they retire most will have built up substantial financial and physical assets on average; around two-fifths by value are in property.

Of course there are many who do not own their own houses. That includes those young people who haven’t settled down. It is often lamented that home ownership rates are falling. There are many factors affecting these rates, but the most important one is that while my generation bought their first homes in their twenties, today the equivalent generation’s purchase is more likely to be in their thirties, just as they are more likely to hold off having their children. If you compare home ownership rates for those above the age of forty you will find that the rates are much the same as they were in the past.

The second reason is that there is a group who cannot afford the deposit to buy a house. The problem that they lack wealth despite in some cases having a good income. I am not going through a full analysis, but people frequently confuse wealth and income and in the case of the housing market they try to fix up the wealth inequality problem by supplementing income. You can be sure that if they try, they will end up with a not very good policy.

The second big time dimension is that dwellings themselves exist for a long time. That means it is quite difficult to add substantially to the housing stock. Build 10,000 houses and less than 1 percent has been added to the total stock of New Zealand housing. Yet it is an enormous strain on the economy to build 10,000 houses. The strain is compounded if we decide we also need to improve the quality of the existing housing by, for example, remedying damp homes.

I illustrate the consequences of the two time dimensions by going back thirty years to the early 1990s when housing policies were dramatically changed in a ‘neoliberal’ direction, a change which still affects our housing policy thinking.

We should not forget that generally Rogernomics was a response to what was widely seen as too much intervention in the economy. In my judgement the balance between private and public provisions favoured the public side of the scales more than it should. Where I disagreed with the Rogernomes is that their solutions were extreme. We can see this in what they did to the housing sector.

At the heart of their analysis was the view that the housing market could be largely left to itself, just like the markets which provide food. I shan't go through a detailed account of all the changes to public interventions they made. I focus on the big mistakes which could be summarised by saying that they ignored the peculiarities of housing in terms of those time dimension issues.

Because they saw that there was no specific food policy, they concluded there was no need for a specific housing policy, so the neo-liberals heavily wound back government involvement in the housing market.

When the Labour (Ardern-Peters) Government came to power in 2017, they found housing policy was scattered across a number of departments with little coherence. One is reminded of Geoffrey Palmer’s comment about how the newly elected Lange-Douglas government in 1984 grasped the levers of power and found they were not connected to anything.

To its credit, the Ardern-Peters Labour Government established a Ministry of Housing and Urban Development. It is easy to destroy a government department but it takes time – ten years perhaps – to build up a fully effective one. This one is only four years old. Don’t be misled by a department’s glossy presentations and flowery language; it is still settling in.

Instructively, the Ministry outcomes – how it defines it success – include: ‘A self-adjusting system – The system works together and with communities to review, respond and adapt.’ The expression ‘self-adjusting’ is a sign that it accepts the neoliberal belief that a housing system can be devised so that it does not need constant intervention.

Nor does the Ministry yet seem to have compiled a comprehensive and historical data base. There are a number of studies with public housing data but nothing as easily accessible on private housing. The Ministry seems to think of itself as a Ministry of Public Housing.

So there is no government agency concerned with the whole of the housing market, despite there being considerable interaction between the public and private markets. For instance, if there is insufficient public housing, some people will end up in the private sector (which includes living on the street); people buying their own houses reduces pressure on public housing; the housing construction industry provides both public and private housing.

I give a couple of examples of where a comprehensive data base was important. The First Labour Government is acclaimed for its housing policies, which included building and renting out state houses and the State Advances Corporation lending to people to buy their own houses. It is often overlooked that these policies were founded on a comprehensive survey of the housing market commissioned by the preceding Coalition Government. That is an example of the usefulness of a good data base. The difficulties when you don’t have one are well illustrated by the current housing market.

After the neoliberal revolution, we lost interest in having a comprehensive account of the housing market. It was expected that the market would look after itself. It didn’t. Over the next quarter of a century there was a steadily growing imbalance between housing supply and demand. There was no data bank to easily monitor the deterioration, while other policies reinforced the imbalance. (Immigration is particularly relevant here, since migrants add to housing demand.)

By the time the Ardern-Peters Labour Government took over, the imbalance was evident. The government was deemed to be at fault, although it was obvious that the imbalance had been building up over the years and that the failures should be attributed to policy slackness on the part of previous National and Labour governments. The public outcry implied the government could fix the mess created by over-reliance on the private market for a 25-year period in, say, 25 days. Five years later the government has made some progress, but if it takes its eye off the ball, the housing situation could easily regress. Without that comprehensive data base who would know – other than those marginally housed?

This column has focused on the stock of housing. A later column will focus on the price  of housing and the bubble housing market.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.