Can Labour tackle the housing crisis? What you need to know

By Michael Hall, RNZ

The Human Rights Commission has released initial guidelines on what the right to a decent home means in Aotearoa, which it says will now inform an inquiry into successive governments’ failure to meet international obligations.

The move has reframed the country’s housing crisis as a human rights issue and some are now urging the government to replicate what the first Labour administration did to address the issue in similar times of economic crisis.

But how is access to adequate housing a human right? Can a modern Labour government confront the issue in the same way party predecessors did in the 1930s and ’40s?

Housing and human rights

According to the New Zealand Human Rights Commission, providing access to adequate housing is a binding legal responsibility, so that the right to adequate housing must be progressively realised in New Zealand.

The right to housing intersects many aspects of international human rights law and is codified in several key instruments, including the Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights and the International Convention on the Elimination of All Forms of Racial Discrimination.

The United Nations Committee on Economic Social and Cultural Rights has defined seven standards that must be met for housing to be adequate.

• Security of tenure: Residents should be protected against forced eviction, harassment and other threats, including predatory redevelopment and displacement
• Habitability: Housing must provide residents with adequate space that protects them from the elements, and other threats to health, structural hazards, and disease
• Accessibility: Housing must be accessible to all, and disadvantaged and vulnerable groups including the disabled must be accorded full access to housing resources
• Affordability: Housing costs should be at such a level so as not to compromise the attainment of other basic needs. For example, people should not have to choose between paying rent and buying food
• Availability of services, materials, facilities and infrastructure: Housing must provide access to services essential for health, security, comfort and nutrition. This includes water and sanitation, power and other essential utilities
• Location: Housing should not be built on polluted sites or in immediate proximity to pollution sources that threaten the right to health of residents. The physical safety of residents must be guaranteed
• Cultural Adequacy: Housing and housing policies must guarantee the expression of cultural identity and diversity

The Human Rights Commission’s inquiry later this year will look at how the government for sought to guarantee these.

How the first Labour government approached housing

The First Labour Government was not only responsible for the first state houses being built, it also guided the country out of an economic depression, through the crisis of World War II and into post-war recovery.

Labour came into power in 1935 promising radical social reform. Led by Michael Joseph Savage, the party was returned to government with a record majority of nearly 56 per cent of the vote in 1938.

Labour had blamed a housing shortage on market failure and in 1936 it drew up plans to build 5000 state rental houses across New Zealand. A new Department of Housing Construction would oversee building and the State Advances, now a corporation, would manage the houses.

In 1937 the first family moved into a state home in Wellington.

Councils got involved too. In 1937, Savage opened the first of hundreds of council-built homes in Dunedin.

In 1940 Wellington introduced a scheme for low-to-middle-income residents with 10 per cent deposit on the cost of the land and house. The council guaranteed a 90 per cent low-interest mortgage, providing an affordable alternative to the government’s state rental-housing scheme.

By 1939 state houses were being completed at a rate of 57 each week, and there were 10,000 applicants on the state-house waiting list.

Between 1937 and 1949 – a 12-year period that saw significant interruptions due to the impact of World War II – 32,000 state houses were built. However, the government’s housing scheme was criticised for being predominantly geared towards skilled urban workers, those who could afford the rent.

Social democracy and housing

The First Labour Government adhered to the ‘social democratic’ variant of socialism, championing a mixed economy – where the state intervenes in the market to tame the beast of capitalism, so that it serves the public good.

Hence, it also nationalised large sections of the economy, including the Bank of New Zealand and domestic air services. Broadcasting and transport were brought under government control.

To stimulate a stricken economy, it increased wage rates, launched a wider programme of public works and introduced universal free health services and extending benefits for the aged, sick and unemployed.

Importantly, Labour also amended the Reserve Bank Act to give the minister of finance the power to direct the Central Bank’s policy. The government at times instructed the Reserve Bank to extend credit to the public sector, especially in aid of the state housing programme.

Modern Labour's key housing efforts

The Labour-led government in 2017 had success passing the Residential Tenancies Amendment Act legislation protecting renters’ rights.

Not long after it enacted a foreign buyers ban on housing and extended the bright line test – the time from buying to selling a property before you incur a capital gains tax on the profit – from two years to five. This year it raised it again to 10 years.

Since Labour came to power in late 2017, 7934 additional public housing spaces have been added. Fewer than half were new-builds, the rest purchased or leased from the private market.

The public housing waiting list has reached record highs, standing at 24,000 in April this year.

Labour’s flagship KiwiBuild scheme, now part of Crown entity Kāinga Ora Homes and Communities, failed to live up to expectations.

Under original 2018 targets the policy was meant to have delivered 1000 affordable homes by June 2019, and over 16,000 homes by now.

It had build 1058 homes by May 31 this year.

In September 2019 it ditched a 100,000 homes target and reset its plan, which included setting aside $400 million to help low-and middle-income New Zealanders buy homes through schemes such as shared equity and rent-to-buy, and reducing the deposit needed for a government-backed mortgage to 5 per cent.

But coupled with this failure of housing supply has been a progressive and striking failure of affordability.

Research by the Massey University Real Estate Analysis Unit in July showed rents increased nationally by 4.8 per cent in a year. The highest increases were in Southland, where rents went up 15.7 per cent.

The average price of a house now stands at $920,000. National average property values increased nearly 25 per cent in the 12 months to July.

Property speculation has help send house prices out of many first-time home buyers’ reach.

Neoliberalism and state intervention

Today’s government’s housing policy is also coloured by its ideological leanings.

It will intervene in the market to fix its more flagrant failures, but it still allows the market to lead.

In this sense it does not adhere to the harsh neo-liberal policy paradigm established by the Labour administration elected to power in 1984. But its tax and economic policies largely operate within these broad confines.

Neoliberalism is a policy model of market-oriented reforms, which includes doing away with price controls, deregulating capital markets, reducing state intervention in the economy through privatisation of public assets and austerity measures.

From the mid-1980s large parts of the public sector became commercialised.

Under the 1984 Labour government nearly all controls over the banking industry were scrapped.

Labour Minister of Finance Roger Douglas made the Reserve Bank and its monetary much more independent from the government. The Reserve Bank Act 1989 assigned the central bank a mandate to target price stability and stability and efficiency of the financial system.

The legacy of that means today’s Labour government must negotiate with the Reserve Bank in a way Savage’s government refused to. Some say efforts to guarantee adequate housing have been stymied by this modern orthodoxy.

In November last year when Finance Minister Grant Robertson wrote to RBNZ governor Adrian Orr asking that the bank take heed of the impact of any monetary policy on house prices.

Robertson said alternative monetary policies the RBNZ had implemented to counter the economic impact of Covid-19, such as the bond buying programme, low interest rates and backing bank loans, had led to housing price inflation.

The minister stressed the government was not seeking to challenge RBNZ independence, nor change its primary mandates of managing inflation and maximising employment.

He instead suggested the bank include stability in house prices as a factor for consideration when formulating monetary policy.

Robertson was politely told by bank governor Adrian Orr to stay in his lane.

The minister then changed the bank’s remit and directed it to “take into account the government’s objective to support more sustainable house prices, including by dampening investor demand for existing housing stock to help improve affordability for first-home buyers”.

But a red-hot house market had already been allowed to drive economic growth, while deeply entrenching social and economic inequality.

Social cost of juiced-up housing market

ANZ senior analyst Sharon Zollner says the Reserve Bank and government have co-operated in efforts to drive the Covid-19-hit economy, but instrumentalising the housing market as a catalyst for economic growth has come at a massive social cost.

“It’s been a central policy of the Reserve Bank – they’ve been very open about the fact that housing is the key channel through which monetary policy works,” she says.

“The housing market is New Zealand households’ preferred store of wealth, so what happens to housing has a huge impact on the broader economy.

“At present, New Zealand is suffering a net negative income shock from the loss of international tourism, yet we’re spending like our house prices have gone up 30 per cent. At least the two thirds of households fortunate enough to own a house are.

“While it has absolutely boosted GDP, the side effects are pretty awful, including wealth inequality and potentially an almighty debt hangover down the track that will lower growth at some point and potentially abruptly.

“The trade-off between juicing the economy, which includes boosting employment, and exacerbating housing affordability problems, has caused tension that’s been clear to see over the past year.”

The situation became so alarming that in March the International Monetary Fund urged the government to introduce a capital gains tax to make the housing market less attractive for investors heating up the market – or, it warned, risk a severe price correction up the line.

Prime Minister Jacinda Ardern however had in April 2019 already ruled out a capital gains tax during her tenure as leader.

“The government clearly deems it not possible to introduce a policy they ruled out,” Zollner says.

“However, the extension of the bright line test could well be interpreted as effectively an expanded capital gains tax, though a well-designed capital gains tax would probably have fewer unintended consequences.”

The bright line test adjustment from five to 10 years was part of a suite of measures in its new housing package announced in May.

It also included closing tax loopholes, adding $3.8 billion to accelerate housing supply, and First Home Grant caps being lifted, as well as higher house-price caps.

Its effects on affordability so far https://www.rnz.co.nz/news/business/446337/house-prices-growth-slows-but-too-early-to-say-if-market-easing have been questioned] by experts.

“While monetary and fiscal policy have been hand-in-glove in terms of quantitative easing, funding the wage subsidy, the fundamental tension remains: rising house prices boost the economy, while falling house prices slow growth,” Zollner says.

“But from here, this economy does not need higher house prices in any way, shape or form. The costs are massively outweighing the benefits at this point.”

Will the Human Rights Commission’s inquiry challenge the view of the housing market as being a place where speculation and monetary policy rightfully meet to stimulate economic growth, but predictably trump the rights of citizens to adequate housing? We don’t know.

Further details of the national inquiry and its terms of reference will be released later in the year.

'Centralist Labour won't fix fundamentals'

What we do know is the first Labour Government introduced broad social democratic principles that became normative policy for several generations and that this facilitated its efforts to tackle the housing crisis at that time.

This Labour government on the other hand operates at a period in history where a neoliberal consensus on taxation, economic growth and monetary policy prevails and that its housing strategy is attempting to succeed within the confines of this framework.

Massey University politics lecturer Dr Toby Boraman says Ardern’s Labour government will remain doing so as it is neither strongly union-orientated or delivered into power on the back of any major social movement to reduce inequality or address the housing crisis.

“I don’t think the Labour government would fix the housing crisis the way the First Labour Government did. I don’t see many similarities between the two governments.”

He says its incremental strategy of change won’t solve the housing crisis or inequality.

“The first Labour government attempted some large-scale fundamental changes to housing. This government is committed to small-scale, incremental changes to take a small amount of heat out of housing prices and to assist first home buyers, which reflects its more middle-class, white-collar orientation.

“But is not really addressing the key problems, namely the financialisation of the economy under neoliberalism and the associated astonishing levels of inequality.

“The state – including the Reserve Bank – has fuelled economic recovery by keeping the financial sector de-regulated and the supply of credit cheap, through low interest rates.

“This has been a feature of the economy since about the 1980s, not just since the pandemic. Jane Kelsey, in her book the FIRE Economy, has pointed out a key driver of economic growth since the 1980s has been rising property and land prices due to this financial speculation.

“Under neoliberal capitalism, no government really wants to slow down that economic growth, so that helps to explain why neither Labour nor National has introduced any significant tax on that wealth, including capital gains.

“Issues like the housing crisis and associated historically high levels of inequality are systemic issues. They require fundamental change to be addressed. Incremental reforms might help a little, but they will leave the fundamentals untouched.

“The Labour government has missed a chance to introduce major wealth taxes on property speculation, as well as a major state housing programme, rent controls, financial regulation, and significant attempts to reduce inequality…

“So far, it is a mild centrist government rather than a centre-left government.”

Source: Read Full Article