This month’s big housing story was not the Reserve Bank’s rate rise, whatever the media coverage suggested. Mortgage rate rises, the effect on house prices, whether the spring market will stall – all of it was reported, correctly, as housing news.
But the bigger housing story occurred last week, when Parliament agreed to something no country has previously tried. Chris Bishop’s new Planning and Natural Environment Acts, replacing the Resource Management Act, do not merely name housing affordability as a goal. Under the new laws councils will have a duty to keep enough land available that its price stops carrying a scarcity premium. An independent umpire will judge whether they have.
Yet the response from the commentariat has been near silence.
Both events are house-price stories. But the coverage went to the one that will move prices for six months, not to the one that could decide them for a generation. If it works, few policy changes will matter more to the nation’s long-term prosperity.
Much of what troubles New Zealand – from poverty to the welfare budget to political discontent – is a symptom of the price of a house. The writers John Myers, Sam Bowman and Ben Southwood gave this view its immodest name in 2021: “the housing theory of everything.” Expensive housing, they argued, lies behind an improbable share of the West’s troubles, from stagnant wages and wealth inequality to falling birth rates and political polarisation. No country has tested their theory harder than ours.
Sixty-one per cent of New Zealanders in their late twenties owned a home in 1991. By 2018 it was 44 per cent. When housing unaffordability locks a generation out of the housing market, who could blame them for concluding that the game was settled before they started to play? Only 17 per cent of New Zealanders now believe the next generation will be better off.
Young New Zealanders are starting families later. The birth rate among women in their early twenties has fallen by more than a third since 2015. Across twenty-five American cities, first births arrive three to four years later where housing is expensive than where it is cheap.
The price of a house shows up in the poverty statistics. Child poverty measured before housing costs has fallen meaningfully since 2018. Material hardship has barely moved. Housing sits between the two measures and eats the difference, with the average household now sending $22.20 of every $100 of income to its landlord or its bank, up from $20.80 six years ago.
House prices reach the children’s wards. New Zealand still admits children to hospital with rheumatic fever, a disease of crowded houses that most rich countries left behind generations ago. The illness spreads in the crowding, the crowding follows rents, rents follow the price of land.
One household in four now gets help with its housing costs. That help comes as subsidised rents, accommodation supplements or a motel room. The cost to the taxpayer came to $5.5 billion last year. Little wonder Bishop calls it “unsustainable.”
House prices decide who can afford to live where the best jobs are. They also help decide whether young Kiwis working overseas come home. A generation ago, a big part of the bargain for those returning from OE was an affordable home. The current generation runs the arithmetic and gets a different answer.
The tragedy is that high house prices reflect artificial scarcity. New Zealand hardly has a shortage of land. But planning laws and cash-strapped councils have kept land for housing in short supply.
Existing homeowners turn up to oppose development. The young couple who would have lived in the flats that were never consented appear on no submission list. The jump in the price of land at a zoning boundary is the scarcity premium made visible.
But if we make land for housing abundant, the jump will shrink towards nothing.
We know supply can push prices the other way, because Auckland has been doing it. The city upzoned three-quarters of its residential land in 2016 when it adopted the Unitary Plan. Studies estimate tens of thousands more homes were consented than otherwise would have been. Meanwhile, the median rent for a newly let home was $600 a week at each of the last three March counts, the first of them at the height of a record migration wave. The 2023 Census recorded the first rise in home ownership since 1991.
The Acts exist to make that lesson national and permanent, by giving someone the job of saying, with numbers, when a council’s rules have made land scarce. They had their third reading last week, before Parliament rose for the election. The thinking behind them took a decade of work across party lines.
The next cash-rate decision will get its front page. Somewhere in New Zealand this week, though, a couple sat down to do the sums on a first house. The umpire almost nobody noticed was put there for them.
To read the article on The Post website, click here.