Policies to solve the housing crisis silent on affordability

Long Read

Housing Minister Chris Bishop: “My mission in politics is to solve the housing crisis” (RNZ Photo by Nick Monro)

Peter Wilson
Wellington, July 5, 2024

Weekly Analysis: Housing Minister Chris Bishop sets out his plan to solve the housing crisis; a survey shows business confidence crashing as more companies go into liquidation and there are calls for the Reserve Bank to drop interest rates and the government goes ahead with legislation designed to help the media survive.

The Minister once said his mission in politics was to solve the housing crisis, and that the unavailability of land was the main problem.

On Thursday (July 4), he announced how he was going to do it and it is a major piece of work with radical changes. Councils will not be able to impose rural/urban boundaries, allowing cities to expand outwards.

He is getting rid of minimum floor area and balcony requirements for apartments, which will make smaller and cheaper options available.

There is much more, and it’s all in RNZ’s report: Housing Minister reveals housing, planning changes to ‘flood’ country with new homes.

Closely linked to creating more space is building houses and apartments that people can afford, which has become one of the dominant political issues in recent years.

Defining Affordable Housing

But what is “Affordable Housing”? Various figures have been used by governments while politicians have been extremely reluctant to say that prices should fall because that frightens voters who own their homes.

Bishop stuck his neck out last week when he said they needed to fall.

When Prime Minister Christopher Luxon was asked if he agreed with his Minister, he took refuge with “downward pressure” being the answer.

RNZ’s money correspondent Susan Edmunds got to grips with this in an article that said prices needed to fall 16 percent, according to one forecaster.

“While affordability has been a political buzzword from successive governments, it is relatively rare to hear politicians say they want an outright drop in prices – it is often more politically palatable to wish for them to not rise so quickly,” she said.

Edmunds sought a range of opinions on what needed to happen.

According to the Real Estate Institute, prices remain 15.9% below their 2021 peak.

Edmunds quoted Infometrics chief forecaster Gareth Kiernan saying average house prices were 6.7 times household income compared to a long-term average of 4.5.

A fall of around 16% would effectively take prices back to around where they were in the second half of 2020.

“However, to be clear, a further 16% decline in house prices would not make housing cheap. It would just make it more like average affordability,” he said.

Independent economist Cameron Bagrie said that prices did not need to fall, it would be better for the economy if affordability improved due to incomes lifting more quickly than house prices.

ANZ senior economist Miles Workman said that a sharp fall in prices would carry significant confidence and wealth effects, and any transition would be a lot less destructive if it was driven by the supply side.

Previous governments have talked about increasing the supply of land and come up with ideas about how to solve the housing crisis, including the ridiculous targets set in Labour’s KiwiBuild. Bishop’s fundamental changes appear to be the most serious and hopefully successful attempt so far.

Prime Minister Christopher Luxon must be worried over the skidding business confidence
(RNZ Photo by Samuel Rillstone)

Luxon talks about a bright future

The week began with Prime Minister Christopher Luxon talking about New Zealand’s “fantastic future” when he unveiled the government’s third-quarter action plan but it is the present he should be worried about.

He probably is – Luxon would not have missed the latest NZIER quarterly survey and the headlines it made.

‘Business confidence has hit the skids,’ Stuff reported, with Political Editor Luke Malpass saying the survey showed precisely how downbeat the business outlook was.

“A net 35% of firms expect a deterioration in general economic conditions, and 28% report a weakening in their own businesses,” his report said.

“In the building sector, two-thirds of those surveyed think things are going to get worse.”

Malpass said that the economic slowdown was in full force but the last bit of inflation was yet to be squeezed out of the system.

“These latest results have banks now calling more fervently for rate cuts much earlier than the Reserve Bank’s track, which currently suggests any rate cuts will be late in 2025.”

At the same time, 1News was reporting that companies filing for liquidation were up 35% year-on-year with construction among the worst affected.

“In the first five months of last year, 116 construction firms were liquidated. This year, the figure rose to 199 companies – a 72% jump,” the report said.

The upside of this is that the Reserve Bank’s rate increases are doing what it intended and it could start bringing them down sooner than it has indicated.

“Gloomy survey sparks hopes of RBNZ rate cut” was the headline on Liam Dann’s report in the Herald. The report quoted Kiwibank Chief Economist Jarrod Kerr: “Enough is enough. The risk here is severe economic scarring from overly restrictive monetary policy.”

ASB Senior Economist Miles Workman said the survey results were “hugely encouraging” for the Reserve Bank.

“OCR cuts before year end remain a distinct possibility,” he said.

It was against this background that Luxon laid out the government’s third-quarter set of targets. While saying that the country had a fantastic future with a world-class education system and modern infrastructure, Luxon put law and order at the top of the Q3 agenda.

Pledge on Guns and Gangs

The Herald gave it front-page treatment: ‘PM’s pledge on guns and gangs.’

RNZ quoted Luxon: “This includes four laws that will crack down on criminal activity and support offenders to turn their lives around.”

These included banning gang patches in public, restricting gang members from associating with each other, bolstering firearm seizure powers, increasing rehab access for remand prisoners and “improving efficiency in the courts and increase access to justice.” Luxon also specifically highlighted the introduction of its military-style academies for young offenders, usually called boot camps, and the introduction of a Young Serious Offender category, the report said.

“However, the government is facing criticism over that approach after official information revealed the volunteer-based course that served as its blueprint has led Defence Force staff to suffer serious mental illness including several cases of suicidal ideation,” the report said.

“The Defence Force had also warned the government to stop comparing the two programmes, saying they were ‘not comparable’ due to several major differences and continuing to do so could lead to public misunderstanding about the Defence Force’s involvement in the new scheme.”

The report said that Police Minister Mark Mitchell had since said this did not mean the LSV (Limited Service Volunteer) programme was not successful, and brushed off suggestions the boot camps would be even harder on NZDF personnel considering participants would be there by order of the court.

And police themselves have warned Mitchell the success of his youth crime reduction target relies on many factors beyond their control, the Herald reported.

Ministerial briefing papers obtained under the Official Information Act revealed the concerns, the report said.

“While the Police support a broad measure on total offending by children and young people, many of the levers to reduce offending or prevent first-time offending sit outside of Police influence, including care, education and health environments,” the papers said.

“We are building a formidable force”-Labour Leader Chris Hipkins (RNZ Photo by Samuel Rillstone)

Bill to support Media

Broadcasting Minister Paul Goldsmith confirmed this week the government was going ahead with the Fair Digital News Bargaining Bill while it developed a long-term programme to support the media. The Bill is the one introduced by the previous government which the National Party did not support at the time.

Goldsmith said in his statement that he had looked closely at the design of the legislation and would be changing the approach to align it more closely with the Australian digital bargaining code.

“The key change is adopting a Ministerial designation framework,” he said.

“This will enable the Minister (himself) to decide which digital platforms are captured by the Bill, allowing the government to manage unintended consequences.”

The Bill aims to force tech giants such as Facebook and Google to pay for the content they use on their sites that come from the New Zealand media.

That way the media companies earn revenue, helping them through the crisis largely caused by Facebook and Google hoovering up advertising.

Media companies can negotiate separately with the tech giants and Goldsmith told Newshub the Bill would be a backstop “to ensure conversations around paying for material happen.”

Facebook, now called Meta, could retaliate if it is forced to pay, as it has in Canada.

Canadian news has been blocked from its platforms since August 2023 so it can avoid paying fees to the media companies, Newshub said.

Goldsmith’s decision brought about the second use of the ‘agree to disagree’ clause in the coalition agreements between National, NZ First and ACT.

ACT does not support the Bill, RNZ reported.

“The Bill is a failed Labour inheritance our partners just can’t shrug off,” said ACT leader David Seymour.

“It is one of those things you do when you don’t know what else to do… it is unlikely to change the underlying reality that media companies need to adapt, innovate, and provide a product customers want to buy, just like any other business.”

Labour said it wanted to have a good look at the final draft of the Bill but supported it in principle – it is, after all, its Bill.

Therefore, ACT pulling support cannot stop it from passing. With National and Labour backing it, there would be an overwhelming majority vote.

The Invisible Hipkins

Stuff published a cartoon this week showing a ‘wanted’ poster with Chris Hipkins’ face on it under the caption “answers to the name Chippy. Can be attracted by sausage rolls.”

Two people were looking at it and one asked when Hipkins was last seen. “Not since the election,” the other replied.

It followed an article by Andrea Vance in the Sunday Star-Times titled ‘How the Opposition has seemed to lose its voice.’

Vance said that eight months after the election it was time for Labour to stop licking its wounds and get back to work.

“The voters need to see that Labour can deliver, and they can start with actually doing the most important job they have scrutinising the executive. Turn those knives on Ministers.”

She said that despite enough opportunities to attack, Labour had failed for months to land a killer blow and if the Party was waiting for economic gloom to unseat National it was in for its own long, slow political death.

“One would almost prefer the noise and fury of a leadership coup, at least demonstrating some drive to do better or hunger for power.”

Labour did get to work this week and the man himself was seen alive and well in Auckland.

“The Labour Party is on a mission to win back the hearts and minds of Aucklanders, acknowledging Super City residents did not feel Labour was listening to them or engaging with them ahead of last year’s election,” RNZ reported.

Labour MPs held a series of meetings and engagements all over the city and a mid-winter caucus retreat.

“I think people in Auckland felt like we were not there were not there talking, and that is something we have got to change,” Hipkins said.

The Party was building up to be “a formidable force” at the next election, he said.

That’s going to need quite a construction job.

Peter Wilson is a Life Member of Parliament’s Press Gallery, 22 years as NZPA’s Political Editor and seven as Parliamentary Bureau Chief for NZ Newswire. The above Analysis and pictures have been published under a special agreement with www.rnz.co.nz

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