Help the poor by fixing housing

Insights Newsletter
16 September, 2016

Open the pages of any major newspaper and you will be inundated with reasons why New Zealand needs to tackle its housing affordability crisis. It needs to be fixed to stop bank balance sheets from imploding, to free capital trapped in unproductive assets, or to put that all-important first rung on the housing ladder within greater reach of first home buyers.

How about doing it because it would help the poor?

This emerged from the latest edition of the Ministry of Social Development’s report on income inequality and hardship trends. Written by Bryan Perry, it is notable for its attention to detail and the use of various sophisticated measures of the issue (which is probably why it has not received much media attention).

A notable point was that in 2015, 28% of households had a high housing-cost-to-income ratio (where the threshold is 30%). That compares to 24% of households in the mid-1990s, and only 11% in the late 1980s. The report notes that the higher this ratio, the more stress households experience.

Unsurprisingly, poor households are hit hardest. Perry’s report shows that in 1988 only 16% of households in the lowest earnings quintile had a high housing-cost-to-income ratio. By 2015 the proportion was 43%.

Quite simply, if helping the least well off in society is a priority, then fixing housing should be the focus.

This may sound obvious, but it is a point that is often missed. For example, Jonathan Boston and Simon Chapple noted the effect of high accommodation costs on the poor in their book Child Poverty in New Zealand. Their policy fix was to increase welfare payments.

That might work in the short-term or in a well-functioning property market, but in a supply constrained one like Auckland, all it ultimately does is push property prices higher to the sole benefit of landlords.

A more lasting solution would be to free the housing market from its regulatory fetters so that more houses can be built, a position that the Initiative has long argued. To do otherwise is to materially contribute to the hardship experienced by the least well-off in our society.

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