In the mid-2000s, when inflation was running hot and the Reserve Bank was having a tough time keeping things under control, the former Business Roundtable’s Roger Kerr warned that monetary policy needed mates.
Government made the Reserve Bank’s job even harder by running expansionary fiscal policy when labour markets were tight and inflation was a problem.
Social housing policy needs mates too.
For a long time, social housing policy in New Zealand meant state houses. But as family sizes changed and people moved, the stock of social housing became less fit for purpose. And much of it was due for upgrading.
And so the National government worked to shift from providing houses to providing income support that helps families rent houses privately.
On first principles, it is an excellent policy.
Selling Housing New Zealand stock in areas where land prices have appreciated considerably can fund accommodation for far more people. Instead of being constrained by available government houses, families would be able to find the rental houses that best suit their particular needs. And private sector providers, knowing that supported tenants would be guaranteed to pay the rent, would be more comfortable in renting to riskier tenants.
But that policy simply does not work as well when zoning is broken.
Building is heavily constrained by rules that restrict new apartments from being built, new townhouses from going up, and new subdivisions from developing. When planning stops developers from building to meet demand, then accommodation supplements mostly fuel bidding wars among tenants. Landlords benefit. Renters – not so much.
It is not rocket science. It is the basic theory taught to intermediate undergraduate students in economics, available in any standard microeconomics textbook. When you tax something like cigarettes, where demand does not change much with taxes, smokers bear most of the burden rather than tobacco companies. If you subsidise rents when housing supply is relatively fixed, renters do not see much benefit.
National’s push away from providing housing to providing income support for vulnerable tenants needed mates in council zoning policies, and in central government’s willingness to help councils make the necessary changes.
The mates seem now to be coming to the table. For those families living in cars, it is just a bit late.