LIKE NEO-LIBERAL ZOMBIES STUCK ON THE ROAD TO NOWHERE
The reality of ‘the market’ in action is starkly visible in our extremely high housing costs — from land, materials and building inputs to end prices and rents. A direct line can be drawn between political neo-liberal ‘laissez-faire’ (we’ll leave it to the market) and some of the worst housing affordability metrics in the OECD. For about one third of our households the aspiration of home ownership, in the traditional sense at market prices, is simply out of reach. These people are ‘the missing middle’ in our society. Essentially those earning too much to qualify for social housing but way too little to qualify for a bank loan (i.e. to be able to save-up the required minimum cash deposit or service the mortgage interest).
The key issue underlying our poor housing affordability is not a shortage of housing (there has been a surplus of dwellings over households since as least 1992) and it’s not our planning legislation (which was designed to mediate the interests of all stakeholders not just fast-track the commercial interests of a select few). There is however a shortage of ‘affordable’ housing, a lack of clarity on how we use our existing stock and a lack of diversification in the housing market. At the root of the affordability problem is our unblinking reliance on ‘the market’ to somehow magic-up affordable housing when almost all of the actors in the housing ecosystem are in it for one thing only — making a profit (ideally tax-free capital gain). The notion that by simply freeing-up greenfield land for subdivision and building more and more housing, for-profit market actors can, will, or would even want to, deliver housing below market pricing is an illusory conjuring trick repeatedly performed by our politicians each election cycle.
It’s perfectly understandable that market actors are in business to make a profit. What is not understandable is our politicians’ belief that ‘for-profit’ market actors will benevolently build housing that is affordable and, more importantly, will remain affordable. It’s just never going to happen — unless perhaps those actors are incentivised or compensated by the state and that represents taxpayer-funded corporate welfare. What is the point of that when the state can instead construct the legislative and institutional framework for not-for-profit actors (i.e. ‘the third sector’) to build and, importantly, retain affordable housing stock. Where the motivation of making a ‘profit’ (often for just a single commercial beneficiary) is supplanted by the objective of delivering affordable, good quality, housing at the lowest possible cost for the widest possible number of households.
Margaret you were wrong. There are some very good alternatives to ‘the market’. Rather than eroding the municipal housing stock in the UK that already provided affordable homes for the missing middle through your ‘right-to-buy’ legislation, you could have instead built on that existing ‘third sector’ housing stock by replicating the successful ‘not-for-profit’ housing systems firmly established in many European countries. Reliance on the market has simply manifested in widespread social inequality and poor housing outcomes.
To better understand the dynamics at play here it may be helpful to step back and consider our housing ecosystem in comparison to some European exemplar countries where not-for-profit housing comprises a very large proportion of the total housing stock and what those countries are doing that we aren’t. In New Zealand our housing ecosystem is dominated by for-profit actors. Some 96% of our total housing stock is in private ownership — split roughly 66% owner-occupier and 34% rental. The balance of 4% is Kāinga Ora state housing representing less than 3% of total housing stock, plus other social housing provided by a mix of community providers (charities, trusts, municipalities etc.).
All of those 96% of private residential property owners are aspiring to book a tax-free capital gain when they sell and that’s the market structure we have encouraged to pre-dominate.
In a free-market economy typified in many sectors by low wages, a lack of enterprise complexity and muted productivity gains (that are not exactly socially-diffuse), that’s perhaps not an unfair aspiration. It’s the quickest way to get ahead for the 66% who can afford to full pay market prices for their residential property (usually co-funded with a bank loan) and the 34% who are residential landlords. But for the 34% of households who are renting from those landlords, ‘the missing middle’, that isn’t an option. They are consigned to renting at full market rates because they currently have no other option.
Austria, Denmark, Sweden and Norway have proactively facilitated a range of other housing systems for ‘the missing middle’ which have resulted in diversified, de-risked housing ecosystems and improved housing affordability and access to good quality housing for those people in society who really need help — the elderly, single parents, disabled, young families, critical care workers, students, others on low incomes. In contrast to New Zealand, the share of all forms of not-for-profit housing in proportion to total housing stock is roughly 42% in Sweden, 30% in Denmark, 24% in Austria and 17% in Norway. In the major cities the share is even greater — roughly 67% in Stockholm, 49% in Copenhagen, 42% in Vienna and 35% in Oslo. The exemplar not-for-profit housing systems in those countries invariably exist independently from the state accounts in ‘the third sector’ (e.g. equity/rental cooperatives, municipal corporations, charitable trusts etc.).
Housing outcomes in those countries include improved affordability, lower price escalation, less price volatility, and better quality. Diversification of housing sectors in those countries wasn’t left to ‘the market’ but rather was achieved through political consensus that access to good quality housing for all is a ‘public task’ with specific legislation and mechanisms to facilitate this. Social equality, including improved and socially-diffuse outcomes in housing, will simply not materialise if left to the market. Thomas Piketty echoes this sentiment throughout his book ‘Capital’, in particular, where he notes “real democracy and social justice require specific institutions of their own, not just those of the market, and not parliaments…”.
Meanwhile, back in New Zealand, we’re like neo-liberal zombies stuck on the road to nowhere, transfixed by the headlights of free-market ideology, waiting for housing affordability to somehow emerge by itself from the glare…..