RAW DATA: Lisa Owen interviews Generation Rent author Shamubeel Eaqub

New Zealand Institute of Economic Research principal economist Shamubeel Eaqub on The Nation

See also: AMA with Shamubeel Eaqub and our book extract from Shamubeel & Selena Eaqub's "Generation Rent"

RAW DATA: The Nation transcript: Lisa Owen interviews Generation Rent author Shamubeel Eaqub

Watch the interview here

Shamubeel Eaqub: We’re grappling with this massive change. After home ownership rising for nearly a century, it’s been falling for two and a half decades. And not only are we seeing this increasing number of people renting, but it’s also taking away any hope of participating in this Kiwi dream, which is homeownership.
Lisa Owen: Well, we actually have a graph, which we’ll take a look at now, which shows that home ownership has been dropping, as you say, down since its peak in the 1990s. How far do you think home ownership will drop?
So house prices have become so unaffordable that home ownership has been falling since 1991 and is now at the lowest level since 1951. And if it keeps at current pace, we think it’s going to fall much more. And what’s happening now is for young people, it takes about half of their income to buy a modest home in Auckland, and if house prices keep rising at current rates, it’s going to be 80% of their income by 2020 and more than their income by 2023 [sic. Eds note: 2031].
So in that case, really is it ever going to get that bad? Would that ever happen? Because wouldn’t demand just drop away, and the market would crash if it ever got that bad, wouldn’t it?
It’s quite possible that it might happen, but in the meantime what we’re creating is generations of people who are being priced out, and it’ll be too late for them to get in there. And so what we’ve created is essentially this lost generation, these cultural orphans, these property orphans, who simply cannot get into the housing market. So regardless of a correction in the future, you’ve still created this underclass, this segregation of society.
And you believe that those people will still exist? Let’s say, even if we made significant changes now, we would still have that group that are locked out?
Yeah, look, I mean, it’s taken us two and a half decades to get to where we are, so these are long-term issues that we’re grappling with, and any of the solutions are going to take a long time to implement. In the meantime, we’ll see the proportion of people, the number of people, renting continuing to rise. So, you know, the imperative to improve the conditions are really strong, but also we’re not expecting quick and easy solutions.
I want to talk about some of the solutions a bit later, but if you were right, say, in about 15 years’ time, people won’t be able to buy houses on their own income, so how will they afford to buy a house? Who’s going to top them up?
So what we’re looking at now is essentially this landed gentry. If you’ve got Mummy and Daddy who own houses, you are likely to own houses. We’re seeing this already in Auckland, where if you want to buy a house, you really need help from somebody who’s been in the market for a very long time. And we’re creating this two New Zealands. This landed gentry, this wealth-generating heritage resource of wealth, those people will be the ones who will be able to buy houses, and then there is the rest. And we’re creating this social and housing apartheid, where you’ve got these people who are generation rent and they’re locked out of so much of New Zealand that predicates itself on owning a home.
So you say housing apartheid?
Absolutely. Housing apartheid is, I think, this concept that generation rent simply cannot participate in so much of how New Zealand is set up.
You’re saying that some people will be forced out of the inner city. Those are likely to be people who are on lower incomes, so it’s going to come down to certain ethnic groups clustered in certain areas, you think, isn’t it?
Yeah, and this ghettoisation is something that’s happening already. We’re pushing poorer people further out, away from transport, away from amenities, and that is going to intensify as inner-city suburbs gentrify. Where they used to house some poorer, some less affluent people, they’re getting pushed out, and this—
But hasn’t that always been the case, though? Hasn’t it always been that people move further out to afford the house that they can afford?
Yeah, that’s absolutely true, but it’s happening even more so. And what we’re seeing is this concentration of poor people in just a few places, and what we’re creating is this kind of gated communities of wealthy homeowners and then the rest.
But people sitting at home watching this who own their own homes, they’re sitting in their own home, they will say, ‘I’m not the gentry.’ That’s a very loaded term, I suppose. And they’ll say, ‘I’m going to help my kids into a house. What’s wrong with that?’
There’s nothing wrong with that for that half of New Zealanders who live in their own homes. For the other half, it means that they’ll never own their own home, and what we’ll see is this growing wedge between the two groups of people. And that describes a New Zealand to me where your chance of success in life depends on whether your parents own their own home or not, rather than whether you have talent and whether you apply yourself. Now, that can’t be the New Zealand that we aim for. That can’t be the New Zealand that’s us, because that egalitarian story, that fair go, that equal opportunity story for New Zealand, which is so strong in our fabric, we are going to sacrifice that.
Well, so what’s caused it? How have we ended up here?
Well, we’ve made mistakes over the last two and a half decades. That’s what has happened. So we’ve got banking policies that favour lending to mortgages and to investment. We have favoured tax policies that have not been very well implemented in terms of the housing side of things. But fundamentally what’s really broken is we haven’t done well enough in terms of land supply; we haven’t done well enough in terms of infrastructure and in terms of building a construction sector that’s capable of dealing with changes in demand.
So if you had to name, say, the top two things that you think would— the changes that would make sure this doesn’t continue, what would they be?
Well, the first one is actually not about fixing this problem but a palliative care.
Mm.
It’s about making conditions better for renters. So right now, renting is essentially a second option and a much worse option than owning. And if I look to places like Germany, where they have much higher tenure and all of those kinds of things, renting is a very comparable option to owning, and we could mimic that in New Zealand by having better rules around tenancy agreements and dispute resolution. So we would like to see that as a palliative option for those half of New Zealanders who are already renting to make it much easier for them. And in the meantime, we should continue the work around how do we increase supply of housing, how do we build the infrastructure that’s necessary but also tighten up the rules around taxes and tighten up the rules around our banking sector, which is pushing more and more money into mortgages, rather than entrepreneurship, which creates long-term prosperity for New Zealand.
There’s a lot of things in there, so let’s unpack some of them. In respect of the people who are renting, you think that they should have longer lease options, don’t you? What would be the right amount of time as a minimum for a lease?
Yeah, so in a place like Germany, it’s unlimited, and I think that’s too big a leap for us, coming from a very periodic kind of rental structure. And what we suggested is something like, say, let’s put in three-year as a norm and people can still change it to suit their circumstances, but also make the reasons for why you can get rid of your tenants or your landlord to move, make those much tighter in terms of the reasons, but also to put responsibilities on the tenant – put the house back the way you found it. And unless we find the right balance between the landlord and the tenant, we’re not going to find a much better tenancy and rental solution for New Zealand.
But isn’t the problem, as you point out, that a lot of the people who own those rentals are mum-and-dad couples, people managing those rentals, and it’s just too hard for them?
It is, and we’ve got this huge number of accidental landlords, I guess. They’re not really in it to look after the tenant. It’s not really their business. They’ve bought the house as an investment, and the tenants are kind of a by-product of it. And what we’re saying is that that cannot be the case. When half of your population is living in rented proportion, how can it be that we have this amateur, poorly regulated, unworkable kind of sector? Surely, it must be that we try and give rights and responsibilities that mimic some of the benefits of ownership, because we’re not talking about the minority anymore; it’s the majority of New Zealanders.
But the whole issue with housing, isn’t it, that it is a political hot potato, because why would people vote for or choose changes that are going to take wealth away from them? Because that’s in essence what you’re asking.
Well, absolutely, and I think that’s the biggest difficulty. The vested interests are incredibly powerful, and they are going to fight tooth and nail to stop any of this stuff from happening. And yet I think it’s time that generation rent got together and rose, because their voice is powerful. Over half of voting age people are in rental properties, but 57% of voting age people in Auckland are in rental properties. They need to demand these changes.
So are you picking that, what, the next political party will rise out of this group or be aimed at this group?
Well, I certainly hope so, because this is the majority of New Zealanders now, and their needs are not being met. And certainly there is very little representation for some of these issues that are very powerful and affecting the quality of our lives, and to say that we are going to keep banging on about protecting the rights of the asset owners, who haven’t done a great job in terms of providing quality of housing, about professional management and all of those kinds of things, I think is very weak.
People at home will be really interested in when you think that house prices should or will take a hit. You say it’s cyclical in your book. You say it’s about a six-year cycle, and we’re four years in. So when can they expect things to start diving downwards?
The more that house prices rise, the bigger the risk of a downturn. But regardless of what happens to house prices, I think the underlying policies that are broken need to be fixed. You know, we sort of look to the Reserve Bank or to the government to say that we should try and solve this, but as we have seen over the last couple of decades, they have no control.
You talk about policy, but the Government says, ‘It’s all a supply side problem. All we need to do is build more houses.’ But you also think that immigration needs to be looked at more closely, don’t you?
Of course. You know, a lot of the cyclicality and volatility in demand absolutely comes from immigration, because two years ago we were wringing our hands that we’re losing so many people from New Zealand, and now we’re saying we have too many people coming to New Zealand. And the thing is we don’t talk about immigration in a fulsome way in New Zealand. It’s weird, because it’s in the very fabric of who we are and yet we don’t know why we have immigration; we just have it. So I would like to see a much more, I guess, articulated approach to immigration in terms of why are we having immigration in New Zealand? What’s the target in terms of population, and how do we manage that?
So you would like a plan that tells people exactly how many people we want in this country? That might not be a popular view because, again, this is a topic that people don’t like to talk about.
Yeah, and I think quite often it gets tinged with racism and you’re accused of being racist if you talk about immigration in that way, but the reality is we have immigration and it adds to population growth, but we don’t know to what end and to what extent. Wouldn’t it be better if we were transparent about it and we talked about that issue, rather than always at the, kind of, fringes and in the shadows? That makes it very much— you know, the thing about the comments at the bottom of your online articles.
But if we don’t have the houses for these people, do we then just have to say, ‘Well, we draw a line. We’re not letting anyone else in’?
Well, I think the issue with the immigration thing is it’s only a cyclical issue. It goes up, and then it goes down, and to say that we will never build enough houses for this increase in population is not correct. Instead what we’re saying is that in short bursts we might not be able to meet that demand, so we’re really talking about responsiveness in terms of our land supply and all of that. But it could be that when we have sudden surges in migration that we limit our quotas for residence visas or for work visas, whatever it might be, knowing full well that it will have a cost on a place like Auckland. You know, where do we get our talent from? More often than not, it’s from migrants.
You talked about land supply there, and in your book, you address councils and the fact that they have significant land assets. And, in fact, one in particular that you raise is golf courses. Tell me what you think should happen there? Auckland is the example you use.
That’s right, and in Auckland, the council owns something like 13 golf courses. And we have to ask some very hard questions on what is the value of that land, and is it being put to the best use? It doesn’t mean we need to raze the whole thing and build all over it, but if we put housing in it, around it, through it, it might be that we’re able to use our land much better. Now, I personally don’t play golf, but I’m sure the golfers will be up in arms right now, saying, ‘Stop that from happening,’ and the reality is we’re not using our land to the best advantage in having open green spaces for pony clubs and for golf courses.  It’s stupid.
Before we go, you were talking about racial segregation, and I just want to be clear on it. If we continue on the way that we are, do you believe that this country will end up racially segregated on the basis of who can afford houses and who can’t?
Absolutely. If nothing changes, I see this massive divide opening up in New Zealand between the landed gentry and the rest, and there’s ghettoisation of the poor in fewer and fewer places, and in many cases, they’re going to be defined across race and ethnicity.
Can we stop it?
Absolutely. Absolutely we can stop it, and we should, and we must. And the ideas that we’ve presented in the book are all about the solutions that are in front of us. What it requires is political courage, leadership and conviction to be able to make it happen.
Shamubeel Eaqub, thanks for joining us this morning with Generation Rent, an interesting read. Thank you.
Thank you.


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