Digital Edition – March 2020 (#228)

What Should We Hope For?

New Zealand Election 2020 (Part I)



by Don Brash


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It seems no time at all since we were celebrating (or lamenting) the election of the Labour-New Zealand First-Green Government in 2017. And now, in little more than six months’ time, we’re going to the polls again.

As I write in the middle of February, the outcome of the election is still very uncertain. If the latest poll results were replicated in the election, we would have another Labour-led Government, with the Greens in support (and New Zealand First too if Shane Jones were to win the electorate of Northland). But the margin is narrow, and a National-led Government, supported by ACT and conceivably the Maori Party, is still a possible option at this point.

To avoid any uncertainty, let me declare that I would prefer a government led by the National Party to one led again by the Labour Party. As a former Leader of National, and briefly also of ACT, it would be surprising if it were otherwise.

But having said that, I also have to say that neither National-led nor Labour-led Governments have done a remotely adequate job in dealing with the seriously big challenges facing New Zealand.

In future editions of elocal, I plan to deal with the failure of successive governments to appreciably raise our living standards, the failure of successive governments to raise the educational standards of far too many of our children and teenagers, and the active promotion by successive governments of the crazy notion that racial harmony will be achieved by perpetuating the nonsense that the Treaty of Waitangi envisaged that those with any Maori ancestry would have a permanently superior status in our constitution.

But in this edition, I want to talk, yet again, about what is arguably our biggest single social problem, namely the absurd price of housing.

Most readers know the basic facts. The median price of a house in Auckland – in other words, the price at which half the houses in Auckland are more expensive and half are less expensive – is roughly nine times the median household income in Auckland (to be precise, 8.6 times as of September 2019 ). That ratio (the “median multiple”) means that houses are less affordable in Auckland, relative to household incomes in Auckland, than in almost any other city in the six countries of the Englishspeaking world. Of the more than 300 cities surveyed in the annual Demographia survey, houses in Vancouver are 12 times the median household income in that city, with Sydney (11 times), Melbourne (9.5 times) and Los Angeles (9 times) all more expensive than Auckland.

But houses in Auckland are more expensive than those in, for example, San Francisco (8.4 times) and London (8.2 times), and vastly more expensive than houses in most American cities, where the median multiple in cities of at least a million people averages just 3.9. In previous articles I have quoted examples of very large (by New Zealand standards) houses in major American cities which sell for less than half the price of similar houses in Auckland.

There is a great deal of concern, especially on the left of the political spectrum, about “increasing income inequality in recent years”. But in fact there has been very little change in income distribution in New Zealand. Before housing costs are taken into account, income distribution has remained remarkedly stable over the last two decades.

What has changed is the distribution of income after housing costs. Because the price of houses has risen very much faster than incomes in recent years, those who were lucky enough, or far-sighted enough, to buy accommodation 10 or 20 years ago have not faced rising housing costs, and on the contrary have watched as their unearned wealth has increased markedly relative to those who did not buy at that time. So income distribution after housing costs has become less equal, and wealth inequality has also increased, both largely because of the enormous escalation in house prices.

In 2008, the median multiple in Auckland was a seriously unaffordable 6, and John Key promised to make housing more affordable. When he left office, the median multiple was approaching 9. Since the Labour-New Zealand First-Green Government came to office, the median multiple in Auckland has barely changed, despite promises to make housing more affordable, and latest indications are that house prices are taking off again, cheered on enthusiastically by real estate agents, existing home owners, and all-too-often the media.

One of the tragedies is that both National and Labour have known the cause of the problem, which is primarily the restrictive planning rules imposed by the Auckland Council.

Bill English wrote an introduction to the annual Demographia survey in 2013 in which he wrote about the devastating impact of the planning rules, as I myself had done in 2008. In 2017, Phil Twyford, then the Housing spokesman for the Labour Party, wrote an article with Oliver Hartwich of the New Zealand Initiative also explaining what a devastating impact these planning rules have on the price of residential land in Auckland. When the new Government announced its programme in the Speech from the Throne in October 2017, they committed to abolishing the Metropolitan Urban Limit around Auckland, thus freeing up land and dropping its price.

And what has been the result? Almost exactly nothing. Neither National nor Labour has freed up the supply of land in Auckland, and it is the quite ridiculous price of land, not the price of the houses that sit on top of that land, which very largely explains the price of “houses”. Worse still, the current Government, no doubt influenced by both the Greens and the horticultural lobby, has imposed policies designed to “protect productive land”, notwithstanding the fact that there are vast areas of land which are currently only used for pastural agriculture or life-style blocks and which could be used for houses.

Given that both major parties apparently understand the problem, why have they both failed to fix it? Unfortunately, while I don’t know the answer to that question with certainty it appears that neither party actually wants to see house prices fall. They know that most of those who vote own houses, and home-owners have convinced themselves that their good fortune is a result not of dopey council planning rules but of their own hard work and diligent savings habit. The idea that that wealth might be substantially reduced by house prices falling to nearer where they should be – in other words by about 50% - is a terrifying one, especially if the house was purchased with a huge mortgage just months or a few years ago.

There is no easy way out of this political dilemma. I suspect it won’t be solved until young voters who can’t afford to buy a home – and perhaps older voters who suddenly realise they can’t afford to live on New Zealand Super if they’re still paying rent, as many will be on reaching 65 – demand a change.

Dr Don Brash is an economist and former Member of Parliament. He served as the Governor of the Reserve Bank of New Zealand from 1988 to 2002.


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elocal Digital Edition – March 2020 (#228)

elocal Digital Edition
March 2020 (#228)


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