State builds missing from govt housing package

By Bryce Edwards*

Opinion: Prime Minister Jacinda Ardern can essentially say "kia kaha" as much as she wants to those at the bottom of the housing market, but it won't help their plight. Eventually her government is going to have to take state housing seriously as a tool for helping solve the housing crisis - especially for low-to-average income earners, who were ignored in last week's housing package announcement.

The problem is an ideological one for Labour. Along with National, the government continues to have faith that "the market will deliver", albeit with some nudges from the state. They believe that private ownership and landlords will provide affordable housing, and the state need only offer social houses as a miniscule safety net for those in extreme circumstances, and even then only for a fraction of those in desperate need.

There was nothing in last week's announcement about building more state houses. Although Labour continues to pay lip service to the need for more state housing, it plans only tiny increases in housing stock, which are nowhere near the level of supply that is needed in a crisis. In its first term Ardern's government built fewer than 5000 houses, despite knowing the market is short of about 100,000 houses.

Questions about the lack of state housing

Yesterday in the Herald, Green MP Chlöe Swarbrick wrote about the limitations of the government's housing package, complaining that "Kāinga Ora (by far the most successful house-building arm of the government, with thousands to its name over the past three years) hasn't been required to build affordable homes (a term this government has been unwilling to define), and there's no mention of new state housing builds".

Similarly, in Stuff newspapers today, conservative columnist John Bishop says: "The package doesn't increase the number of houses the state has available for the 22,000 on the state house waiting list. Why not? Surely that is the area of greatest social need. Perhaps these people are not a political priority, although I cannot understand why this would be the case".

At the time of the housing announcement, others also pointed to the lack of state housing. Newstalk ZB's Heather du Plessis-Allan asked: "So where's the big idea? Where's the boldness" - She thought that large-scale state housing should've been part of the mix: "Michael Joseph Savage had a grand idea in the 30s. He pumped out 33,000 state houses for people who didn't have homes. We're probably due the 2021 equivalent of that."

Many poverty advocates were also disappointed by the omission of state housing from the announcement, with the Child Poverty Action Group saying the government housing package "ignores the elephant in the room".

According to spokesperson Susan St John, "What is needed is diversion of scarce building resources from high-end housing and renovations to building more state housing." Her group was "concerned the package includes no serious attempt to accelerate good-quality state house building and to ensure the resources and expertise are available for this".

The government's package was clearly focused on the idea of improving falling rates of "home ownership", ignoring the cost of housing for those that rent. According to documentary maker Bryan Bruce, in coming up with last week's package, the government was asking the wrong question ("How can people get to own a home?") when it should be "How can we give people security of tenure in a healthy, warm, dry, affordable home?" He argues that many other solutions become apparent when the focus isn't merely on homeowners.

Meanwhile, the housing crisis for those at the very bottom of the market continues to escalate. On Tuesday Stuff's Henry Cooke reported on the latest state housing waiting-list figures, saying that "the newly released figure of 22,803 represents a rise of over 7000 households from January 2020, and is more than four times the size of the list when Labour was elected in 2017".

Arguments for a mass state house building programme

It is increasingly obvious that nothing short of a mass programme of state house construction is required. I made the case for this late last year, writing for The Guardian it should again. Looking back through the history of state provision of housing, I argue that this is the one big tool that governments have successfully used to fix shortages, and that in a historical context, the numbers of social houses being produced by the current government are rather pathetic.

Stuff's Andrea Vance made a similar case, saying that "the private sector alone has never - and will never - build enough homes", and we've got to get away from the concept of state housing being only for "the desperately in need", necessitating the government returning to "housebuilding on a large scale".

Here's her key point: "History shows demand is only ever satisfied with direct state intervention, when the government has built homes on a large scale. Housing is a right: we should think of it in the same way we regard universally available services, like schools, hospitals and public transport. We need a return to more public housing, to provide a safe, warm and secure home for those who do essential work and for younger generations, who have had their property-owning dreams crushed by Covid-19."

Help from China?

Around this time Chris Trotter suggested we seek inspiration from the history of "Red Vienna", where sophisticated working class high-rise apartment complexes were developed.

But given the current difficult logistics of ramping up state house building, Trotter advised the government turn to our biggest trading partner for help: "There is only one place to go looking for this sort of assistance - the People's Republic of China. Few nations on earth have a construction workforce large enough to take on such a massive job, but China does. The Chinese have been building infrastructure all over Africa for more than 20 years."

Interestingly, property developer Bob Jones makes a similar argument in his ongoing support for greater numbers of state housing.

Prof John Tookey of AUT, who is an expert in construction management, thinks the New Zealand state does in fact have the capability for a mass state house build, and talked about this on RNZ in February. He argues for the state to do the building, because "sitting waiting just for industry to step up and do the right thing, it doesn't work that way", and that "In the end government must bankroll large scale construction". But he cautions that the government should avoid state housing "low-density monolithic models of the past".

Tookey was also interviewed by Susan Edmunds for the article, Govt 'should focus on state houses, not first-home buyers'. According to this article, the "only way to achieve the outcomes necessary was to get ahead of the market with the development of large tranches of social housing, to maximise economies of scale".

Founder of KiwiSaver provider Simplicity Sam Stubbs is also in favour of a mass state build, saying the government should look to the past when New Zealand governments had to deal with housing crises: "A rising population needed homes, and the Government stepped in to build them in volume. And they were very well-built. There is a premium paid for old state houses, for good reason. The Government has huge advantages in building to scale. It can make laws, and has the money. So it needs to get on with the job".

Business journalist Bernard Hickey takes a similar approach, and earlier this year argued that current rates of state house building "won't scratch the surface of the 100,000 houses shortage".

Hickey also makes this point: "The only entity with a big enough balance sheet to do that is the Government. It needs to guarantee more like 10,000 houses a year for 10 years and ensure most of those are small, medium density and affordable, either as state houses or for rent-to-buy or leasehold on Government land."

State houses are urgently required in the provinces, where there are now very few such houses. For example, see Sam Kelway's Government must 'build houses now', Ōpōtiki mayor pleads amid housing crisis, and Georgia-May Gilbertson's Napier's long social housing waitlist - the highest per capita.

But isn't the government already building more state houses?

The Labour government likes to argue that it is already increasing the stock of state housing and tends to re-announce their building plans often in order to get this idea across. Ardern herself often says: "This is the largest public housing build programme since the 1970s", ignoring the fact that state house building since then has been extremely low.

The best answer to all of this comes from the convenor of the State House Action Network, John Minto, who lays out the facts in his piece, How fast are we building state houses? He points out that "from 1938 to 1942 the government built 14,000 new state houses - 3500 per year. The population at that time was 1.6 million… Our population now is five million - three times larger than it was in 1935. So are we building three times as many new state houses each year as we were in 1935? No! In fact each year we are now building less than half the number we built each year from 1938."

Minto labels the current rate of building "pitiful" and suggests that "If we were to build new state houses from 2021 at the same rate we built them under the first Labour government then we would be building 10,500 per year instead of the measly 1600 per year Labour is promising".

In January, when the government re-announced its state housing programme, Minto responded: "Yesterday's government announcement on new state housing is a pathetic response to the biggest housing crisis in New Zealand since the 1940s. At a time when the country needs an industrial-scale state house building programme, the government building just 1600 new state houses per year - the same number built by National in its last term".

In contrast, Minto says "The last time we had a housing crisis this big - in the late 1940s - a Labour government built 10,000 state houses per year."

Similarly, Bernard Hickey says the "trouble is the new supply is actually about half the new supply added in the 1950s, 1960s and 1970s, relative to the population" - see: Will the Government actually 'do something' about rising house prices this time?. He says "The state house build programme would need to be closer to 60,000 to bring the stock of state housing back to its early 1970 levels".

Where would the money come from?

Huge amounts of money is currently being spent on what economist Shamubeel Eaqub calls "ambulance at the bottom of the cliff stuff". He is cited today by Brian Fallow pointing to the waste of this money: "At the moment we have something like 3500 in emergency or transitional housing. On average it costs $90,000 a year to keep a household in emergency housing… If we prevented that by spending $50,000 a year we would be better off".

This article also reports: "There is something like $70 billion sitting in KiwiSaver accounts. A lot of those savers would like to see some of that money put to work building things that New Zealand needs, like affordable housing and infrastructure," Eaqub said.

Earlier this year, Susan Edmunds reported that the state's expenditure on the Accommodation Supplement - which effectively goes to subsidise landlords - is increasing rapidly.

Writing last week, the Herald's Simon Wilson lamented that this housing subsidy is ill-spent: "This is a complete failure of the market and of government policies for decades. And it costs us: $3.5b a year, up from $2b just five years ago and still rising sharply. Most of that money helps with the rent. Very little of it contributes to home ownership or any other long-term social good. It doesn't build homes or communities, it doesn't create jobs or boost the construction sector. It's not a strategy to fix the housing crisis. It's simply money spent to avoid what could become catastrophic social collapse".

Wilson believes that these billions of dollars would be better spent by the state building houses, even if those houses are for the private or not-for-profit housing sector.

Hickey wrote about this in January, suggesting that the government could actually use this money to build up to 800,000 new homes: "Rent subsidies paid by the central government are forecast to rise from $2.6b last year to $4.2b by 2025. They have already risen from $1.9b over the last four years, Treasury figures show. Just as first home buyers use their rent to calculate how much they could afford to pay in interest, the Government could currently borrow over $400b with that $4.2b of rent subsidies. At $500,000 per dwelling, that $400b would 'buy' 800,000 new homes, which would be half the current housing stock of the entire country".

Finally, for an amusing parody of how New Zealand's market model of housing is currently working out, see Dave Armstrong's clever satire, Pride and Property, an Austentatious tale.

*Dr Bryce Edwards is political analyst in residence at Victoria University of Wellington. He is the director of Democracy Project.