By Bernard Hickey
This week's Salvation Army report into housing baby-boomers in retirement exposed the deepest fault-line opening up in New Zealand's society and its economy -- home ownership.
The report's author Alan Johnson recited the facts we all knew about the fall in home ownership from a high of 74% in 1991 to a 60-year low of 64%. On the face of it, a 10 percentage point fall doesn't sound like much and 64% is still better than the rate for most of the last century. There would also be many who argue renting is no disaster, including those who say it's an economically rational thing to do in the face of apparently unsustainably high prices.
But that 10 percentage point fall disguises the massive scale of the earthquake underneath the population since 1991.
Johnson's report focused on the fate of those nearing retirement over the next 10 to 20 years, but one fact he uncovered says an awful lot more about the kids going through our schools, hospitals, prisons and into our workforces now than anything I've seen in years.
Nearly two thirds of the 430,000 households formed since 1991 are tenants.
Think about that for a moment. It is a stunning revelation of how the young and the poor have been hit the hardest by the changes in New Zealand since the mid-1980s, and on an enormous scale.
It means two thirds of the kids born in those families grew up in rental accommodation, and more than 80% of those are private rentals (although the Housing NZ homes are often no better). That means they often grew up in mouldy, damp, cold and insecure housing. It's true that some homes occupied by their owners are also below par, but it's a much lower proportion and owners have the option to improve their homes through insulation and ventilation.
The NZ$696 billion increase in the value of New Zealand's houses to NZ$821 billion between 1991 and 2015 means the 64% of owners in live-in houses have also had plenty of financial flexibility to improve those houses. Renters have had no access to that wealth creation and are not allowed to put a pin in the wall, let alone put in a ventilation system or some batts in the ceiling. The take-up for the Government's home insulation and heating subsidies were vastly higher among home-owners than they were for landlords.
Those 284,000 renting households formed since 1991 have also often been forced to move schools and communities and all the roots that build families because New Zealand's rental market is so transient. Landlords buy and sell their properties much more regularly than in other more established rental markets. The average tenancy length is 15 months in New Zealand.
I had my own experience of this a couple of years ago when moving cities. Our family had to move out of two rental properties in 12 months because the landlords returned from overseas or decided to sell. In the end, the uncertainty accelerated our own move into a house we bought and we have settled ever since.
But houses owned by families are more than just stable and healthy places to bring up those families. They are also a crucial part of our national retirement infrastructure, as was pointed out by Johnson this week.
The assumption underpinning New Zealand Superannuation is that a retiree will be living in their own mortgage-free home by the time they stop receiving income from work. That means they don't have to use any of a relatively small superannuation payment to pay for a mortgage or rent, which also cushions the blow of a drop in income between working and New Zealand Superannuation. If they have to pay rent, they are much more likely to be poor and struggling.
Until now, the flow-on effect of New Zealand's higher home ownership rate in the 1970s and 1980s was that the households formed 30-45 years ago when new families were in their 20s meant their retirements over the last decade or two has been relatively comfortable. It has meant New Zealand has had one of the lowest rate of elderly poverty in the world.
But that only works when the retiree not only owns their own home, but has also paid off the mortgage.
Johnson's report illustrated the flow-on effects on this retirement system for baby-boomers, particularly those born from 1960-65, of the falling home ownership rates from 1991 onwards. He estimated the number of pensioners who will have to ask for an accommodation supplement to help pay their rents could almost triple to 100,000 by 2025.
The Government is already paying out NZ$1.2 billion in accommodation supplements. That is based on 2005 rent levels and the maximum levels for these supplements have not been changed since 2007. Meanwhile, the median rent for a three bedroom house in Avondale, for example, has risen from NZ$320 in 2005 to NZ$490 now.
Rightly, Johnson called for the Accommodation Supplement to be reviewed. Understandably, the Government is reluctant, given any increase in those maximums in combination with the rise in the numbers applying for the Supplement would add hundreds of millions of dollars to the bill.
It illustrates the scale of the fallout from that collapse in home ownership from 1991. Not only has it handicapped the education, health and productivity of a entire generation of New Zealanders, but it is set to magnify the likely growth in pension and healthcare costs of our ageing population. And that's before the wealth and income inequality effects.
New Zealand created 'Generation Rent', as aptly described by Shamubeel and Selena Eaqub in their recent book of the same name. It also created Generation Renting Pensioner and Generation Poor Family.
A version of this article first appeared in the Herald on Sunday. It is here with permission.