At their most recent conference Labour leader David Shearer, under immense pressure from both inside and outside the Labour Party, announced a keynote policy which promises 100,000 new homes to be built over the ten years following a Labour Party electoral victory in 2014.
The response to date, with a few exceptions, has been divided according to two positions. The first is that Labour’s policy is a rebirth or reaffirmation of the principles of the first Labour government. The second position is that Labour is simply announcing an unaffordable election bribe, and that the policy is simply middle-class welfare and an example of big government. Both positions are analytically superficial.
In a New Zealand Herald DigiPoll survey released on January 10, over 70% of respondents approved of Labour’s promise to enter the housing market to build 100,000 low-cost homes over the next 10 years, with only 26 per cent disapproving.
This is portrayed as being a return to old-Labour values, a line in the sand ideologically with the National Party. However, below that hark back to the past, much of what Labour has presented is more aligned to a modern neoliberal perspective than a social democratic framework from the past.
At the core of this policy is an unflinching focus on the middle class ‘swing voter’. This is symptomatic of a recent trend of chasing the centre voter which continues to move rightward. This is despite indications from regular State of the Nation surveys that the general perspective of the population remains to the left of the major political parties. And so, the focus of Labour’s policy is towards providing “affordable” private housing in areas where it is currently hard to purchase such houses.
The problem is that in Auckland alone, the population is expected to increase by over one million people in the next thirty years, requiring 13,000 houses a year to be built, just to keep up with demand. Currently there are 3,000 houses being built per year. Labour has correctly identified a ‘market failure’ and yet their answer, largely, is to continue with the trajectory of the last 30 years. Namely privatizing existing state housing land and running down what is left in order to justify selling it later. In the Q&A released alongside the announcement of their housing policy, Labour has said the following in relation to where the land to build on would come from;
“Much of the land will come from HNZC buying new land or building on existing developments. Labour will also use public land and look at reconfiguring and subdividing some existing state house land as opportunities arise.”
What this means in practice is a continuation of the current National policy (begun under Labour) to subdivide and demolish state housing. This is currently seen in the Auckland suburb of Glen Innes. along with the arguments that it’s better, more efficient, to build state housing ghettos than spread around the country, around each city, or arguing that state housing tenants have no right to enjoy a house near the sea (as is made in Glen Innes).
Another important question is whether $300,000 is affordable for a first home purchase. Clearly Labour’s policy is for a very focused programme that ostracises a whole layer of people for whom $400,000 is far beyond their means. The only major critique from the left has been from Mana’s John Minto who has said, “It is a worthy policy and we will support it. But where is affordable housing for families on low-incomes? This entire group has been disregarded in Labour’s announcement today” and “No low-income family will be able to afford $300,000. These families struggle from week to week and will never be able to save a deposit or meet the mortgage repayments required for home ownership. They are caught in the vicious squeeze between high private rental costs and the government’s impossible criteria for eligibility for a state house”.
It is important that we understand the role of housing in the New Zealand economy, why Labour chose to unveil this as their keynote policy and why it is seen so favourably. Housing plays an important role in the New Zealand economy. Ideas such as the ‘quarter acre dream’ as well as the effect of the 1987 share market crash have cemented the role of housing as a central aspect of investment and financial security.
As opposed to the relative abstract/fictitious nature of shares, a house is a concrete thing. One can see it and live in it. After watching the value of shares drop 14.7% it’s not unnatural to have an aversion to the special form of speculation that is the stock market. According to figures from the Reserve Bank, in 1980 debt was 47% compared against an average family’s income. The income-to-debt ratio rose quickly in 1991 and peaked at 153 per cent in 2009 before falling slightly to 143% in 2011. What these figures demonstrate is the changing role of the traditional family home or second rental. What used to be a future superannuation asset or left for inheritance is now used as a present asset to leverage off.
Alongside the rise in debt has been a lowering of workers real income. Real wages have dropped by 25% compared to 1982. (See ‘Exposing Right Wing Lies’ by Mike Treen). What we see vis a vis housing is that this rise in debt, mirrors the collapse in workers incomes. 97% of debt is mortgage debt according to the reserve bank. What keeps the lending going is the ever increasing rise in house prices. 2013 prices are higher than at the peak before the global financial crisis in 2008.
The mortgage industry is based on speculation. Even if someone has a mortgage at 95%-100% the assumption is that the increase in house prices will increase to cover any danger of forced sale. Individual forced sales have little impact in the wider ‘market’ beyond the ability to profit off someone’s loss and their need for an immediate sale.
On the other hand a tipping point can be reached, such as in the U.S. when over 6 million people were given foreclosure notices in 2008-2009. This creates a collapse in confidence amongst others paying back loans because of the collapse in house prices. This happened in Detroit where some where some house values collapsed by more than 90%.
While over five billion dollars combined was lost by 240,000 people from the collapse of the 19 finance companies since the financial crisis, the integrity of the core banks and their mortgage portfolio has survived relatively unscathed.
In New Zealand, forced house sales rose from under 500 in 2008 to over 3000 in 2009 and flattened to around 2500 per year. Mike Donald of land and property information provider Terralink said that “The concern is that while we think we may be through the effects of the recession, it’s still proving to be pretty tough out there.” When pushed for information on how many houses are potentially in a situation of foreclosure he replied “How many other properties are close to being forced into this situation? We can’t answer that question.” ANZ Chief Economist Cameron Bagrie also has few answers. In an article promoting the economic future of the New Zealand economy, he said, “Things are getting better out there; it’s not universal, it’s not across the board.”
This is the broad economic context of Labour’s housing policy. All they are doing is the bare minimum; what the “market” is totally failing to do. This policy is not going to solve any fundamental problems in the New Zealand economy, if nothing else it will only encourage and bolster the status quo by bringing 100,000 new home owners into the speculation game.
If Labour carries out this housing policy it will be done on the basis of profits, whether people live in them is merely a secondary aspect. It’s estimated that the subsidy involved in getting these houses on the market in the policy’s price range could be anywhere from $50,000 to $150,000, a fine profit for whom ever manages to gain access to one. As there would in all likely be an excess demand for these houses, a lottery would be involved for those who can meet the financial requirements. In that sense the policy is similar to the Working For Families tax rebate programme begun by the 5th Labour government. The poorest families had no access to that either.
A programme to build 100,000 state houses for people to live in- as opposed to speculate on- would be radically different, as 100,000 new state houses would drive rents down in the private market. The increased availability of housing would undermine the coercive pressure that landlords currently hold in forcing people to make do with the high rents and often substandard housing.
As opposed to the first Labour Government when housing speculation was not a central part of the economy, capitalism in New Zealand today is heavily dependent on income from rental activity, capital gains and inheritance (not to mention speculation). The Labour opposition can’t fundamentally challenge one of the tenets of the neoliberal economy, speculation on private property. This is why the Kiwibuild policy will not address housing needs and why we must demand a democratically planned system with housing for all.