New Zealand is amidst a grave housing crisis just now. It was predictable. The National government that came to power in 2008 also initiated one of the largest immigration booms since the 1870s. But they didn’t alter neo-liberal era planning laws relating to land use – meaning new housing districts weren’t developed. And what was built was left to private enterprise, whose interest was not helping those in need but making a profit for their shareholders. Furthermore, they also began selling off the existing stock of state-owned houses – places where those whose misfortune was not their own might find a home.
The result has been the worst housing crisis since the 1930s, coupled with skyrocketing prices for the existing housing stock. It’s a classic demonstration of the principle of supply-and-demand so beloved to Economics 101 students, made worse because the one thing that is in easy supply is money. And that’s despite the Reserve Bank variously introducing what were called ‘supplementary instruments’ to try and control the degree to which the trading banks can lend money to home-owners.
You can see the issue: where housing stock is limited but the money to buy them cheap to hire (which is what a loan actually amounts to) prices are only going to go one way.
What has surprised me in all this is the way each step on the upwards spiral has been ‘normalised’ – every step of the way. Back in the early 2000s my wife and I looked at buying a house in a Wellington district suburb which had a horrifying price-tag by the standards of the time. Today houses are easily three times that price in the same suburb. And people accept it.
The steps – two hundred thousand, three hundred thousand, five hundred thousand, six hundred thousand, seven hundred thousand – and now, in many places, a million or more – have each been horrifying. Each represents real money that people, somehow, have to earn. But every time, the new pricing has somehow been accepted.
One million dollars. Easy to say. But it’s a huge figure. I mean, back in the 1960s it was the sort of money a bad guy with a mega-laser on the moon might try to extort from world governments. Now try earning it, especially at a time when the neo-liberal destruction of older union compacts has led to stagnating wages for even white-collar workers. And then try earning the interest needed to pay for a mortgage of that size – which is easily going to be another million, over the life of the mortgage.
The problem is that the Ardern government hasn’t done anything useful to fix the issue. And yet the formula for doing so has already been shown to work. Back in 1935 a Labour government under Michael Joseph Savage was elected to the backdrop of a rising economy. One of their first acts was to fix the housing crisis of that day. The first step was to enable the Reserve Bank to issue and administer cheap housing loans. These were accounted in large leather-bound registers which were still in the Reserve Bank’s offices as late as the 2010s, when I last saw them. Savage backed that with a massive state housing programme. This took years to come to fruition: it was further extended from 1943 when government began a massive suburban expansion designed to house returning soldiers. By the 1950s the crisis was largely over.
There is nothing to stop the Ardern government from doing the same thing. Money is cheap – real interest rates (ie: inflation-corrected rates) are negative just now, meaning Government can borrow without great cost.
But none of this has happened. Two generations of neo-liberalism have made state intervention anathema – a mind—set given teeth by the Fiscal Responsibility Act that forces governments to run the country like a bankrupt corporate trying to trade back to solvency. It’s been made worse by the fact that neo-liberal policies also transfer practical power to the business sector.
Worse, the old political compass has gone – everything has been shunted several places to the right, meaning that old centre-left policies (the social-democratic compacts of the old Labour party) are being dismissed as (gulp) socialism – not that anybody today appears to have much idea about what that term actually meant, back in the day.
But when a problem reaches the scale of New Zealand’s current housing crisis, only central government has the reach and resources to resolve it. And it is, ultimately, also their duty to act – after all, they represent the people and are there to serve them. It’s what governments are for. Government is also sovereign. Defying the business lobby – with its international entanglements, notably in the banking sector – might well provoke a fight, but the legal and moral balance is entirely with the state.
I’ve asked it before. When will Mickey Savage return to save us?
Copyright © Matthew Wright 2021