Monday, May 2, 2022

Barend Vlaardingerbroek: Housing in NZ – forward to the past

Homeownership [sic] allows households to accumulate wealth and social status, and is the basis for a number of positive social, economic, family and civic outcomes….. Homeownership boosts the educational performance of children, induces higher participation in civic and volunteering activity, improves health care outcomes, lowers crime rates and lessens welfare dependency….. [P]ublic policy makers would be wise to consider the immense social benefits of homeownership for families, local communities and the nation. - National Association of Realtors, 2016

Hello everyone. This is your favourite Middle Eastern correspondent – well, ex-Middle Eastern correspondent, having left Lebanon last June and then spending almost 6 months in Turkey waiting for MIQ slots.

We stopped smoking several days before flying out not for any health-related reasons but because there is no way I am paying over a hundred bucks for a pouch of Port Royal. In Turkey I was rolling an excellent local blend for about NZD3 a pouch. Has it been hard stopping smoking after 55 and 47 years respectively? No, it’s been surprisingly easy – every time we get the craving we think of handing all that money over to this Government and that is a lot more unsettling than a few withdrawal symptoms.

What has been truly unsettling has been engaging with the housing market. One thing that got me badly off-side straight away is the practice of inviting bids over a certain amount rather than simply telling potential purchasers how much a place costs. I’m old-fashioned; you tell me how much it costs and I’ll decide whether to buy it or not; either that or conduct an auction – none of this surreptitious ‘blind auction’ crap. That simply further inflates what are already insanely high prices. So here we are in what I call our $350,000 birdcage – a 2-br home unit in rural Canterbury.

Is housing really costlier with reference to incomes than it was in the past? Yes it is, In a 2010 article (It’s hard labour to own a house), Alice Neville of the NZ Herald compared the situation then with 50 years earlier:

The average Kiwi has to work nearly three times harder to pay off the average house than they did 50 years ago.,,,, [T]o pay for the average home of $350,000, someone on the average wage has to work for 17,680 hours [which] works out to about eight-and-a-half years' hard slog. In 1960, by comparison, the average home cost just $6639. Although the average wage was a measly $1.05 an hour, compared with $19.79 today, paying off a house would take 6332 hours, or just a little over three years.

The average home – 3-br on its own section – was 350 grand then, now it’s 1.35 million when I looked it up today. The average hourly wage now according to Google is $27.76 so you’re looking at over 48,000 hours or about 23 years using the same conversion.

Granted, averages are imprecise measures that can lead to very misleading conclusions being drawn, but when we start seeing differences on this scale we can quite safely assume that something very real is happening. More importantly, direct measures of home ownership show that owning one’s own home is on the decline:

The proportion of people living in their own home was the lowest in almost 70 years at the time of the 2018 Census, and homeownership [sic] is becoming much less common for younger people. - StatsNZ, 2020

The alternative to home ownership is renting. For people dependent on the private rental market, the news is not good. As noted by NZ Stats in its housing report of 2020,

Renting households … generally spent a higher proportion of their income on housing costs than owner-occupiers in 2018; and the proportion of renting households that spent more than 30 percent of income on housing costs increased rapidly from less than 20 percent of renters in 1988 to over 40 percent in 2019.

The connection between renting and poverty is one of mutual causation and reinforcement. In her article Working, still poor: Is renting keeping us that way?, Susan Edmunds noted the following from a 2019 research report:

After housing costs were deducted, renting households had an in-work poverty rate of 12.8 per cent. When working poor households were renting, they spent on average every second dollar of their disposable income on rent, compared to every fourth dollar for in-work non-poor households.

These last quotes allude to households rather than individuals, reflecting the gear-change that society underwent from the one-income to the two-income family as a norm. For a family or married couple to be on a single income now is usually an economic death sentence – unless of course there is a rich daddy hovering in the wings. Even for two-income couples, a generous intergenerational transfer to cover a deposit and get the mortgage down to manageable levels is fast becoming a must, if it isn’t already. Said NZ Herald News Editor Andrew Laxon in a 2016 article Home truths: No rich parents? No house!:

Housing affordability researcher Ian Mitchell told the Weekend Herald that for many frustrated renters the Kiwi dream of home ownership was already out of reach. "For a significant proportion ... the only way they're getting into the market is if their parents are giving them a couple of hundred thousand dollars for the deposit."

Shared ownership systems are starting to attract more attention. Maybe I’m old-fashioned, but I would not regard a place of which I own a percentage as being my place at all. Lawyers will undoubtedly be anticipating an avalanche of disputes coming their way in connection with these arrangements especially once they turn sour.

We now have a two-tier society: those who can, and those who can’t, own a house. The latter group are trapped in a rent-induced poverty cycle with all the concomitants that accompany poverty. And there is nothing they can do to help their kids escape that cycle as that requires a 6-figure sum. Given that the prospect of home ownership for a working class one-income family was what brought so many immigrants to these shores, this is an irony indeed. Why has it happened?

The best answer I can present is from the Australian 4 Corners episode Going, Going, Gone of last year (simply substitute ‘NZ’ for ‘Australia’) in which one analyst commented as follows:

I think there’s been a shift in the Australian psyche where, because so much wealth is generated from housing over time, rather than a place of security where you raise a family, a house is something that you seek to create wealth from and speculate on. So that’s a really big shift over the last 40 years and it’s really one that I don’t think will serve the future well.

Indeed it is not serving us well at all. As in the US, NZ society as a whole benefits from increased rates of home ownership. People who live in their own house exhibit different profiles from those who do not, even allowing for demographic factors such as age. As a group, they have better educational outcomes and better jobs in which they earn more, they have better health indicators, and there is less likelihood of family dissolution and welfare dependency. All the negatives alluded to cost the taxpayer big bucks through social security provisions, public health care interventions, and all the costs associated with the antisocial behaviour that comes with poor education, family break-up, etc - policing and incarceration. Bear in mind also that, through rent assistance as an add-on to benefits, we are putting tax money straight into the pockets of landlords.

Perhaps people a generation ago were smarter than we are today and knew all this – and acted on it. An early 1950s State Advances Corp leaflet entitled The advantages of home ownership followed by How you can purchase your present home on the most liberal terms sets out how to apply for a low-interest or even no-interest home loan from the SAC. An Encyclopaedia of New Zealand 1966 informs us that

From February 1958 civilians on small incomes were granted 3 per cent loans at a time when the standard State Advances interest rate was 4¾ per cent and the prevailing rate charged by private institutions was 5½ per cent. These loans became much easier to obtain in April 1959, when it became possible for parents to capitalise the family benefit (up to £1,000) to assist in financing a house, making additions, or, in some cases, to reduce or pay off a mortgage. Many people with families who had been unable to save enough to bridge the gap between the cost of a house and the loan limit were able to obtain a house…   

To many a reader in 2022, this probably evokes a response of ‘they must be having me on, this is too good to be true!’ But that’s how things went in the NZ I came to in 1961.

The costs of the SAC system brought about its demise. But we need to revisit those calculations and balance them against the very considerable costs that we incur by creating a nouveau-pauvre class trapped in a vicious poverty cycle fuelled by exorbitant rents. Economists also speak of ‘externalities’ – benefits of economic policies that, while they may be difficult to quantify, add to the general well-being. The benefits that home ownership imparts to society represent compelling externalities.

So let’s set up a movement aiming to reinstate the SAC or put in place something very much like it. Are there any takers out there?

Dr Barend Vlaardingerbroek is a retired academic. He lived and worked for many years outside NZ, principally Lebanon, Papua New Guinea and Botswana. Feedback welcome at


Anonymous said...

i cannot fathom why land is so expensive in NZ despite the population density being so much lower than in places where land is much cheaper.

i cannot understand why every home needs to 'pass' a test to be allowed as a rental. why not just inspect and give a 'grade' from A-F. let the owner and renter decide the suitable price with eyes wide open. so much housing stock is off the market because owners can't be bothered to make significant investments, yet many renters might prefer a 'not so great' house to none!

i think we need far more variety in terms of prices and amenities to let free market work and get more people into a house (owned or rented).

Laquejx said...

There is a contradiction is damning a government tax of cigarettes on one hand and yet demanding government intervention to correct another injustice. Governments acted responsibly and effectively against the cigarette companies to save lives.

Barend Vlaardingerbroek said...

Governments spend money on all sorts of things. As a taxpayer I have an interest in how governments raise money and what they spend it on. There is no contradiction here!

Joseph said...

Part of the problem is the numerous regulationa and building codes that control house construction. As a teenager I lived in a SAC house, with my parents and 3 siblings, in which there was one open fire place for heating, the windows ran like rivers in the winter, my parents had to install a garage, driveway, and additional paths., and we were happy to have a roof over our heads. For thosecould afford to purchase a house, there was no requirement for off street parking, double glazing, heat pumps, and many other additional features which have added considerable cost to modern houses. The cost of a section today is highly inflated as a result of the developer having to contribute huge sums to the infrastructure (roads, storm water, sewerage etc) instead of this being provided by local councils. Surely this cost could be born by local bodies and recovered over perhaps 50 - 100 years, incorporating the interest on the capital for the period. In addition, potential home owners and renters want more and more features incorporated in modern dwellings. Again, in the sixties families comprising parents and four children would live in standard 3 bedroom houses, with 1 bathroom, 1 toilet,1 kitchen dining area, and 1 lounge. Today's little darlings want a bedroom for each child, separate kitchen dining areas, a lounge, a family room, an exterior deck, and double car garaging.
Is it any wonder that the modern home is expensive and takes so long to construct.

Barend Vlaardingerbroek said...

I suspect most people would rather have 1 bog that they own than 2 bogs that they rent. If they are intent on a second bog they can always get one added later from the money they save from not paying rent.

Anonymous said...

In reply to Joseph, I have a friend in town rural STH island who wanted to subdivide his large section to sell part of it. When he was told he had to contribute 150k to the local council coffers he said stuff it and so still lives on a huge section.

Anonymous said...

The most significant reason for rising housing costs are omitted- harm avoidance policies, physical emotional cultural financial In order to build a new house the availability of land and every element in its construction has to meet these costs in addition to the debasement of the currency to avoid economic risk. As the reason for these harm avoidance policies can be justified there is political solution The inevitable end result is economic and social collapse and autocratic rule We are well on that path manifested by imposition of critical race doctrine in our institutions

Robert Arthur said...

The requirements for rentals are absurd. The warm dry concept has been pushed by purveyors of insulation and heat pumps. Houses which have served generations for decades are suddenly deemed health hazards, despite increasing temperatures. I do not know how the ancient houses in the back streets of Taihape, Raetahi etc cope. The supposedly sub standard conditions are OK for owners (who, by sensible behaviour, regularly avoid mould.)
Many who listened to parent's tales of the 1930s share market fall, or observed the 1987 collapse are still very wary of shares. And, since 2008, of finance companies. Gold is too complex to own and all gain is often taxed at top rate. Successive governments and especially the present one have shown a complete disdain for the preservation of the spending worth of savings. Few now feel that employment will remain secure as they age. Not surprisingly o many have put their faith in property and values have rocketed. The 1960s style car based expansion over productive land is not now acceptable.
Especially now with small, late or no families there seems something fundamentally defective with the concept of toiling for decades to pay off a house and then die leaving a huge asset. In many cases spend up renters have the last laugh.