NZ POLITICS DAILY: The Housing apartheid problem

POLITICAL ROUNDUP

Dr Bryce Edwards

Shamubeel Eaqub

There’s a social divide opening up in New Zealand cities, especially Auckland, over home ownership. But is the division about race or wealth? And what can be done to fix it?

New Zealand’s worsening housing affordability problem is causing serious social problems. There’s now a consensus on that that issue, illustrated by a media report on Wednesday quoting politicians from all sides acknowledging the social fallout from rising house prices – see Radio New Zealand’s House price rise increases inequality – English.

A Government report out last week – The Families and Whanau Status 2015 report (PDF) – also illustrated some of the financial stress being caused by housing unaffordability, as reported by Shelley Robinson in 'Middle-class poor' struggling with financial stresses: report.

Increasingly it’s acknowledged that this gap between those who can afford to buy houses and those who can’t has widened to an extreme situation. Economist Shamubeel Eaqub has recently labelled it a form of “housing apartheid”. His book Generation Rent is about this growing divide and what it means for the country. He explained on TV3’s The Nation why this is essentially a social-economic class divide, rather than one primarily based on ethnicity. His 11-minute interview, Shamubeel Eaqub on Generation Rent is well worth watching. 

TV3’s interview transcript also records Eaqub’s forthright explanations of this economic “segregation” and “ghettoisation” occurring. He says that although there’s also a generational and ethnic dimension to the housing problem, he describes “this massive divide opening up in New Zealand between the landed gentry and the rest”. So it’s the “haves” versus the “have nots” – an economic rather than race divide.

Eaqub’s book, co-written with his wife Selena Eaqub, has created quite a stir. Despite not being as sensationalist as Labour’s recent race-based campaign, this class-based diagnosis is receiving plenty of interesting book reviews. The best review is Rob Stock’s House price divide threatens British-style class system. See also Stock’s article, Eaqubs' 'Generation Rent' deserves a hearing.

Of course, Eaqub was one of the economists who spoke out strongly against Phil Twyford’s “Chinese-sounding name” campaign on housing. And his own campaign on housing affordability shows how an examination of the housing affordability problem – and the potential solutions – don’t need to concentrate on race or populism. In fact in terms of the “foreign investor” issue, Eaqub has done his own research – based on more credible data than Labour’s – and estimated that such purchases account for only about eight per cent of housing. 

And in a blog post published last week, Generation Rent, Shamubeel and Selena Equab argue that we should ignore the distractions about foreigners and immigrants, and look for real solutions, and they propose a few. These are “structural policy changes” around tax, banking, and housing supply – not quick-fix populist ones. 

Incidentally, Shamubeel Eaqub has just left his position as principal economist with the New Zealand Institute of Economic Research – see John Anthony’s Shamubeel Eaqub leaves NZIER, considers business ownership

Left and right are angry
Predictions of growing economic segregation are an “alarming thought” according to Generation Rent book reviewer Morgan Godfery – see: Generation Rent: What's really the solution? He proposes that “A wage catch up is one way to make housing more affordable without secretly wishing for the bubble to burst”.

Also on the left, blogger No Right Turn refers to the book’s prognosis and says that the way forward is to look to the past: “in the late C19th New Zealand was developing an unwelcome landed gentry of high-country farmers with vast estates. The Liberal Government strangled that would-be-aristocracy at birth with land taxes, which forced the breakup of those estates. We need to do the same again - not just capital gains taxes on property speculators, but estate taxes and restrictions on the use of trusts to counteract those disparities of wealth and prevent them from accumulating” – see: A landed gentry

But it’s not just those on the political left who are up in the arms about the concept of the growing unfair housing divide. Act Party MP David Seymour has been making some similar points to the Eaqubs, and in May complained that “home ownership has become the privilege of the wealthy” – see Rob Stock’s Home ownership now for privileged few – ACT. Seymour is quoted as saying that "For the first time we have a situation in New Zealand where property ownership is heritable”, and "I look at most of my friends, lawyers, doctors or engineers. All of them went to Auckland Grammar, or St Cuthberts. All of them have done it with parental help”.

The growing housing divide is making some furious – see Peter Calder’s House rage – we're right to be angry. This is the core of his rage: “We have betrayed a generation and generations to come and I'm angry as hell about that. In just 15 years of this century, we have destroyed one of the great achievements of the last one: making New Zealand a place where anyone who wanted to could have their own place to call home”.

Solutions to the problem
The search for housing affordability solutions has become the main political battleground for 2015. But it’s not just politicians offering recommendations. One of the more interesting recent proposals comes from Metro magazine’s Simon Wilson – see: The property challenge. He also complains of the “potentially bitter social divide” resulting from what is currently occurring, and puts forward a checklist of solutions that need to be implemented. 

There are plenty of economists having their say at the moment. Eric Crampton says the answer is more investment – from foreign and domestic investors – and that we need housing and development regulations cut back to aid this – see: Auckland's property has hit defcon Homer - we now have a 'crisitunity’. Arguably that is starting to happen to some degree in Auckland – see Maria Slade and Catherine Harris’ Auckland plan may allow more dwellings on some sections

In Generation Rent, the Eaqubs see the regulation of banking as being a big part of the problem. Bryan Gould seems to agree, saying that the Australian-owned banks “are responsible for our housing crisis” – see: Banks fuel housing market by 'creating' money

A much more in depth examination of the role of banking regulation, and the Reserve Bank in particular, in driving the “credit tsunami for housing” can be found in Graham Adams’ North and South feature, Auckland House Price Insanity. Adams also asks whether the Auckland housing market is a bubble (ready to be burst). This theme is also taken up by Brian Easton in Bubble, Bubble, Boil and Auckland Housing Trouble. See also, Arthur Grimes’ Understanding Housing Affordability

A different type of banking problem is pointed at by Gareth Morgan, who says that property developers are sitting on large chunks of land for future use – see How do we stop land banking? (with video)

Outgoing Herald financial journalist Brian Fallow ponders New Zealand’s “deeply embedded cultural preference for owning a patch of land” – see: Is it goodbye to the back yard? He wonders if renting is really so bad, and says being in debt to foreign banks is potentially much more of a problem. 

Another solution is to simply encourage the population and economy away from Auckland – see Jacqueline Rowarth’s Generation Rent may yet lead the way.

Finally, although there are plenty of solutions now being discussed that don’t necessarily involve blaming one particular group of people, it’s still sometimes useful to point the finger at the politicians, which is what Caleb Morgan does well in his blog post: Breaking news: Occupations extremely likely to be property speculating.


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Bryce Edwards continues promoting General Ignorance. He should be on QI. A tour de force to devote a whole article to the problem without once mentioning the solution identified by every professional: fix the supply constraints on the market.

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The pitchforks may be coming out in Auckland, but they certainly won't be in provincial NZ. $250k can buy you a revamped 3 bedroom house with big backyard in my neck of the woods. Just shows you how far out in orbit Auckland prices are these days. Come join us, we don't bite (hard) :)

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Quite right Evan. This is principally an Auckland problem and Aucklanders are dreaming if they think there is some special intrinsic value that makes their wooden boxes worth that much more than everyone elses! It's bubble just waiting to burst despite what former RBNZ staff say!

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Just like every other bubble, it's all debt-fuelled, and no one will escape the wrath of it's bursting (see: Japan circa 1990; Ireland circa 2006; US subprime mortgage boom circa 2008 etc etc etc).

It's NOT different this time...

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This certainly isn't a situation which is going to last for long, so it won't pay to be smug about it.

And what we all need to wake up to its what was emphasised on the 60 Minutes programme tonight - it's our actual land, our farmland and the businesses that feed off it which are our biggest challenged to New Zealanders continuing to want to own our own country.

Communist China has sent its property developers to New Zealandm Australia and elsewhere, funding them to the tune of $3 trillion (more than Australias's GP) to buy up every bit of land that they can. The products from this land are earmarked for Chinese ownership and further stockpiling - as is already happening with our dairy products... The businesses, the trucking companies, the ports, the ships that will carry what this land produces are all being eyed by China, to be swallowed up -for the benefit of China - not for New Zealand.

As has been pointed out - this is not what our parents and grandparents fought two world wars for - for New Zealanders to be priced off their own land - with John Key very determined to do absolutely nothing about this. A register of foreign investors will count for very little, and these sorts of requirements can be very easily circumvented.

Money talks. But they don't make any more land. So what are you going to do about this? Nothing ?

Perhaps not the chattering classes. But out in the provinces New Zealanders have had enough of being sold down the line.

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Words, words, words, millions of words, swirling around, but hardly touching the sides. Talking about everything but ...

Born and bred in Auckland, grew up in Auckland, departed, went to Australia for 11 years, with biennial returns back to auckland, keeping in touch with family and roots, and most importantly planning a return.

Gotta tell you I can't live in auckland. It's a mess compared to 1980's and 1990's

My partner and I have sold our moderate house in Melbourne for a moderate sum. Not enough to get into a middle-class suburb in Auckland

We have bought 50 acres of arable rolling land in the South Island, building a brand-new 150 sqm house, all-up total cost is less than the cost of a bare section in Mt Eden, Sandringham or Mt roskill

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Good on you for realising the rat race and hopeless amounts of debt doesn't make one happy. Hope you're enjoying it down there and can keep warm!

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Warmth - yes, my partner is an eco-warrior from Perth WA where you get tired of 40+ degree days, she persuaded me to get in front of global-warming and let it catch up to us

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David Seymour is quoted out context, in that anything he says on housing in Auckland needs to include his widely quoted view that the problem is one of lack of supply due to the restrictive planning approach of Auckland Council. David does not support any of the other "solutions" proposed by Bryce Edwards friends on the left.

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My understanding of economics is that prices rise only because there is excess demand. This can be caused because of "absolute demand" or a lack of supply or a combination of both.

Auckland is suffering from abnormal demand (immigration - foriegn and domestic and international investment), at a time when supply is also constrained (lack of building and also i suspect an increase in the level of unoccupied homes).

Trying to fix this issue from one side only will in my view just create another imbalance in the future. We need a balanced approach trying to slow demand, while increasing supply.

Here are some thoughts on fixing supply:

(1) get the Auckland city council out of the way
(2) tax all unoccupied houses in Auckland on a notional return on capital basis (that is notional income of say 5% of the value, that is then taxed). This will force some people to sell or to rent out. the tax paid can be claimed against future capital gains tax, as someone who owns a house that is not occupied in most cases will be doing it for capital gains.
(3) Bring in a couple of major Chinese property developers to build 30,000 homes a year for say 10 years.

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