Brendon Harre says to become a fairer society, we should learn the lessons from earlier struggles for economic, social and political justice. Applied to our housing crisis, affordable housing could be easily solved

Brendon Harre says to become a fairer society, we should learn the lessons from earlier struggles for economic, social and political justice. Applied to our housing crisis, affordable housing could be easily solved

By Bendon Harre*

Housing affordability in New Zealand and in many other places around the world is getting worse.

This exposes difficult choices. If the value of New Zealand’s housing continues to rise, if there is no price correction, this will widen the socio-economic divide.

The property owners, the landed gentry will benefit and those without property wealth will suffer.

Long term, refusing to acknowledge this widening socio-economic divide means the chances of some sort of radical revolutionary response rises.

Unlikely in this modern day, to be guillotine wielding revolutionaries of the Parisian type – more likely to be something like the anti-establishment outburst of the Brexit or Trump variety.

Yet if the government decides to act in a way that leads to a downward correction in house prices, this will create a public controversy around issues of fear and financial turmoil.

This dilemma is at the heart of why successive governments in New Zealand have failed to implement effective housing market reforms.

Further discussion of this house value graph by ANZ economist – Sharon Zollner is here.

The strategic policy choice of government can be described as -manage the controversy over housing affordability now, so that moderate reforms can be implemented, versus ignore the problem and potentially face a more radical revolutionary response in the future.

Some people have pertinently asked if there are examples of somewhere implementing reforms to make housing more affordable? There is quite a bit of evidence from a large number of cities that the decisions made with respect to restricting new house building does affect affordability. What is less frequently seen are cities which reverse restrictive decisions, going from a highly to lightly restrictive building environment, which then resulted in an improvement in housing affordability. Perhaps the only example is Tokyo, which removed building restrictions following the 1980s property boom and now house prices in Tokyo, a city ten times the size of Auckland, has house price to income ratios half of what Auckland has.

Michael Reddell former Reserve Bank economist who has the blog-site Croaking Cassandra has discussed Japanese housing affordability and thinks it is perhaps an example of successful housing supply reform. But in general Michael believes culturally and politically New Zealand will find housing affordability supply side reforms difficult to undertake and believes demand side reforms of reducing immigration will more likely find public favour. So if a government does choose to act strategically on housing affordability its options are to address supply or demand or both.

President Obama has chosen to address supply restrictions by releasing a Housing Development Toolkit, advising States and local jurisdictions on how to best manage urban planning to achieve affordable housing. Some US cities are very restrictive, so these reforms may cause a measurable downward price correction, but it is too early to tell. There are both supporters and detractors for the President’s approach, which if followed to its logical conclusion by going from advice to a command would remove some aspects of planning autonomy from local government control.

Given there are few examples of successful supply-side housing reforms, I have looked for historical examples of downward price corrections, of other necessities, due to government reform and found one which quite closely fits our situation — the 19th century British campaign for affordable food.

The story goes like this.

In 1815 the soldiers and sailors won the war against Napoleon but the government handed the victory to the landlords. They had profited from the high price of grain during the war blockade, and so the government passed the Corn Law to forbid the import of wheat until it reached 80 shilling a bushel. This was a de facto ban; it meant that the aristocrats could continue to benefit from high prices and the high rents that they supported. It was passed by the Commons and Lords with the building surrounded by bayonets. The poor of London rioted because they knew that, having had 20 years of high food prices and poverty, the end of the war was not going to make their life easier.

So restrictions on the importation of grain in 19th Century Britain led to increases in food prices, in particular for bread –a daily staple.

A painting of the Peterloo Massacre by Richard Carlile

There were not just riots outside of the Houses of Parliament in 1815, the Corn Law contributed to the Peterloo Massacre in 1819. This was where the British Calvary charged a crowd of 60,000 to 80,000 people who had gathered in St Peter’s Field outside of Manchester, demanding reform. The Corn Law had contributed to poor economic conditions – unemployment, famine and hardship. The crowd demanded widespread reform –from greater political representation to the immediate repeal of the hated Corn Law.

These initial efforts of reform were crushed by the conservative governing authorities, the non-conformist radical leaders were imprisoned, newspapers like the Manchester Observer were closed down to be replaced by the less radical Manchester Guardian, later to become the UK Guardian.

But gradually reform was allowed to occur in Britain. In particular, the 1832 Reform Act was an important step forward, where the landed gentry lost their rotten borough MPs and faced a greater number of middle and working class constituents in the remaining electorates. Although the radicals did not achieve their full demands of -one person, one vote -a reforming process was started which meant this was inevitably going to be achieved by future generations.

The next step of reform was to repeal the Corn Law. This was achieved by an unusual alignment of two groups.

The first group -the radical socialists who represented the working class wanted cheaper food to alleviate poverty because it would help avoid famine, starvation, malnutrition and raise disposable incomes which would give working class families more options and more strength, which would give them more freedom in the future.

The working class understood this bigger picture and articulated this in their union meetings.

In 1833, Trade Unions in Sheffield organised an anti-Corn-Law petition and in January 1839, Sheffield’s middle classes re-established the Anti-Corn-Law Association… In November the Trade Unions agreed to support the anti-Corn-Law campaign. At the November meeting, Harrison of the edge tools trade said; “If the Corn Laws were abolished it would give the working man greater strength to resist other evils… Considering these things … they were of the opinion that if they could overcome the Corn Laws first, other evils would fall before the persevering stroke of those who struggled for liberty.”

The second group was the growing city based middle-class libertarians, in particular the owners of the new industrial factories were influential as they organised the Anti Corn Law League. They wanted the Corn Law repealed, not because they wanted their workers to benefit, but because it would help their businesses. They could pay their workers less but the workers would still effectively get an increase in disposable income because of the reduction in food costs. Workers could then afford to buy more of what they were producing. Businesses gained twice -their labour costs would fall but their revenues would rise.

The following video explains the historical dynamics of reform versus revolution and how different social groups came to align.

What are the lessons from the campaign for affordable food?

  • Achieving a strategic alignment of a broad cross-section of social groups is important.
  • Acknowledging that moderate incremental reform can prevent future radical revolutions.
  • If traditional media does not report on your campaign create new media. The Economist newspaper was founded by the British businessman and banker James Wilson in 1843, to advance the repeal of the Corn Law.
  • Simple clear statements/images with a strong moral message are effective.

Anti-Corn Law medal -Inscribed “Corn Monopoly: A Nations Curse” (at top) and “Thou Hast Withholden Bread from the Hungry” (at below). Selling for £255 on ebay.

Anti-Corn Law pamphlet

Opposition to affordable food reform was divided. There was great dissent within the Peel-led Conservative Tory government of the time. Sir Robert Peel being in favour of reform, while much of the party, especially from the shires being against. Some even forming an Anti-League which at the time got much publicity from Tory leaning newspapers.

In 1846 the Corn Laws were repealed –probably triggered by the moral horror of the Potato Famine in Ireland. Although for Ireland -reform was too little too late -one million people died and a further million migrated -creating such bitterness, independence from the UK was inevitable. The UK mainland was able to avoid the 1848 continental revolutions, which historians attribute to the reforms we have discussed reducing social tensions.

For the UK Conservative party from 1846 onwards, there was a split between the Peelites who were economic liberals and the more protectionist, landed gentry part of the party which came to be represented by Benjamin Disraeli with his populist one-nation conservative politics.

There are some parallels and differences between New Zealand’s current efforts to fix the housing crisis and the 19th century British affordable food history.

  • The Corn Law was an intractable problem in Britain where very little progress was made for 30 years until the 1840s. Housing affordability has been getting worse for 25 years in New Zealand, house prices have risen faster than incomes and the home ownership rate peaked in 1990. Successive governments in New Zealand have not been able to implement effective reforms.
  • Progress began to be made when the public started to see the problem as moral issue –that the Corn Law was in effect a tax on the poor’s daily bread with all the consequent problems of malnutrition, starvation, famine… In New Zealand the housing crisis became ‘real’ for many by the publicity about increasing homelessness. In New Zealand 41,000 individuals and families move between temporary and insecure accommodation, such as, bunking down with extended family members and living in garages, garden sheds, cars and caravan parks. There is an even greater number of families living in poor quality insecure private rental tenancies which on average only give a home for two years or less, leading to problems of transient communities. These housing conditions have consequent ramifications for childhood poverty, education and health. Note the fact New Zealand had a well-attended public Homeless Inquiry is evidence many people are beginning to see the moral dimension of the housing crisis -see my Homeless Inquiry submission.
  • Both now, with respect to housing, and in the past with respect to food, there is a ‘landed gentry’ group which benefits from the status quo and which puts obstacles and conditions on reform -like no reform which will lower house prices.
  • A nationwide coordinated campaign on the benefits of affordable food reform was effective. The Anti Corn Law League was one of the first coordinated British democratic campaigns to be successful -it extended the lessons from the succesful anti-slavery campaign.
  • New Zealand’s modern day conservative party –The National party is probably more split on the housing affordability issue than they publicly admit. The liberal side of the party want to reform infrastructure funding and restrictive planning rules, while the old fashion ‘landed gentry’ side are worried about the effect this will have on their ‘leafy suburb’ constituents. Because these interests do not align the National party has not been able to implement effective affordable housing reform to address the housing crisis.

For New Zealand to become a fairer society, we should learn the lessons from earlier struggles for economic, social and political justice. If these lessons were applied to New Zealand’s housing crisis, in my opinion affordable housing could be easily solved.


Brendon Harre is a reader and commenter on housing issues in a number of forums. It was first published here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Michael Reddell, the former NZ Reserve Bank economist wrote an article on his Croaking Cassandra website in response to this article. Michael's article is titled -Housing reform, the Corn Laws and possibilities for New Zealand. It is also worth a read. https://croakingcassandra.com/2016/10/29/housing-reform-the-corn-laws-an...

I think your comments about media would help enormously Brendon .All our mainstream media depends on the property market continuing for it's advertising revenue, even TVNZ . It's interesting how loudly property price increases are announced and how little is said(if anything) about price drops.
There was a recent article in the Herald about the recovering property market in Sydney likely to lead to bigger increases here. There was a recovery there but the median price there(in the biggest city in Oceania with much higher incomes) is still about the same as it is here and the other cities in Australia are cheaper than here.See the link below:

http://www.ljhooker.com.au/myljhooker

Also if you are interested in a short 8 min video explaining in a clear and memorable manner what the Corn Law was all about. Here is a link. https://www.youtube.com/watch?v=-iostWBLJ0M

Michael Reddell's major criticism of my article is there is a lack of progressive social movements, campaigning for more choice and more affordability in the housing market in comparison with the Anti-Corn Law League which was the most powerful social movement of its time. I think he is correct about NZ. There is quite a lot of concern about the housing crisis, it is a hotly debated issue, but it hasn’t yet coalesced into a particular social movement. But I am hopeful it will.

In the US, in cities like San Francisco and Seattle which are culturally similiar to our NZ cities and which are experiencing the same crisis in their housing markets, there is a growing YIMBY movement.

I particularly like -Sara Maxana -a progressive YIMBY who clearly articulates the problem in a humanistic way that I think people can connect to. See https://www.youtube.com/watch?v=kNYAvhaWN6s for a short 5min video -there is longer one from the YIMBY conference that is very good too.

The US had a YIMBY conference in Boulder in 2016 http://yimbytown.com/. I believe the YIMBY movement is going through a phase of honing their message and broadening their appeal. The optimist in me wants to believe in years to come YIMBYs will be more influential than NIMBYs.

Greed
It is instinct.
A lot of people in NZ deny it.
While they will quite happily flip thier house to the next sucker down the line.
And when the brown stuff hits the rotating device, they will come crawling back.

reform will come once those of us that own property become a minority as we only have one vote each.
I expect in the next ten years to see the end of neg gearing on property
new laws encouraging long leasing of property to tenants
tax on CG on property not sure on how comprehensive
WOF for rental property

The number of renters who are voters is a surprisingly hard statistic to find. Stats NZ gather data on individuals -and have stats on New Zealanders over the age of 15 who don't own the property they live in. But that figure includes the teenagers who live at home, which Stats NZ accounts for this figure being lower than the more widely quoted statistics on the number of households which are owner occupied. But the discrepancy could also be accounted by the possibility/likelihood that rental homes have a higher occupancy rate of voting age tenants than owner occupied houses.

See page 40 of this report on Auckland housing
file:///C:/Users/brendonh/Downloads/housing-in-auckland-trends-1991-to-2013%20(1).pdf

"Data on home ownership at the individual level was collected in the 2001, 2006, and
2013 Censuses. This data is useful for looking at changes and trends in the personal
characteristics of home owners and non-home owners (eg age and ethnicity). In a home
that is owned, not all household members may be owners of it. For example, people aged
in their 20s, 30s, or 40s (or older) may live in a home that is owned by their parents, and
in households of unrelated people, only one household member may own the home. As
this data is for all people aged 15 years and over, including teenagers living with parents,
and people living in non-private dwellings, the figures are lower than for home ownership
at the household level.

The percentage of people aged 15 years and over who owned their home was lower in
Auckland, at 43.4 percent, than elsewhere in New Zealand, at 52.9 percent, which is a
difference of 9.5 percentage points. These figures include those who owned or partly
owned their home or held it in a family trust, with or without a mortgage. The gap between
home ownership levels in Auckland and elsewhere in New Zealand has been increasing
since 2001. In 2001, there was a gap of 7.2 percentage points (49.8 percent in Auckland,
57.0 percent elsewhere in New Zealand)."

Social and racial tension unavoidable with inequality on rise

If I was a salaried young professional I'd be getting out of Auckland too. Even on a 'good' income by NZ standards they're never going to get ahead there this late in the piece without family help.

To fix this the government could think about sourcing Indian or Filipino teachers to replace the New Zealander teachers who can no longer afford to live in the city. This will bring more 'diversity' which is something Aucklanders want more of too.

12
up

Ways the lower middle and upper middle class are getting totally screwed in NZ

1. Massive amounts of Chinese cash purchasing existing homes. This is the single most important factor dictating Auckland house prices - period! If you’re denying that you’re either willfully ignorant or deluded. If I had have been born 15 years ago I’d have owned a home in Kohimarama, Mission bay, or the North Shore by now. Instead that would-be wealth has been transferred to some Chinese or other foreign owner with the help of the government (Wealthy migrant visa). I see this all the time. My friends in the late 30s with Ph.Ds, now kids, and good jobs just can’t compete with Chinese buyers and consequently have been turned onto renters! How can the price of homes in Auckland possibly be over 1 million dollars when most people don’t even earn a crappy 100K salary, and some people don’t even earn that! All the talk is about supply side economics which is ridiculous, because it has almost nothing to do with the reality of Chinese mediated Auckland house price hyperinflation.

2. Unrestricted 3rd world immigration driving down wages and living standards. People who come here with low expectations may be thrilled at the prospect of working at Masala in Mission bay for $2 per hour. Or they might be happy to accept paying 80% of their wages in rent shared accommodation in a substandard mouldy box. The fact that this is unacceptable to a New Zealander is irrelevant because the new wage rate has been set at the lower bound, albeit for unskilled labour.

3 Regressive taxation policy. Since taking office the government has raised GST, lowered income tax and raised the price of tobacco, then prevented people from bringing tobacco in through duty free. All highly regressive forms of taxation which have the greatest impact on vulnerable, mentally ill, and working class people.

This government really is an enemy of the people.

with regard to #1 - The introduction in Vancouver of a 15% tax on foreign buyers has resulted in a decrease of foreign purchasers from 13.2% to 1.3% of all purchases - in seven weeks - and has resulted in more than 10 million $ additional revenue in that period.
http://vancouversun.com/business/real-estate/foreign-buyers-plummet-to-1...

Not seen in those figures may be the existing overseas owners who quit the market.
Hence the Vancouver figures could easily a net negative well before the raw statistics indicate.

And the same could easily happen in Auckland.

Nee Zealand government should realise that NZ is such a small island that Chinese money can buy it number of time and that too at a premium and this is exactly what is happening KIWI DREAM IS FOREIGN BUYERS REALITY.

This is a fact and only people who are making money as a result of this sell out for their personal petty gain are turning blind eye to what is happening in NZ.

Does one still want to vote this national government for whom prosperity is selling NZ in the name of prosoerity and money at the cost of Kiwi dreams and lives.

re no1: Chinese money may have been what lit the fire, but the behaviour of NZ property speculators leveraging off equity in properties they already owned has added plenty of fuel. It has been the biggest middle-class get-rich-quick scheme ever.

The problem is, whilst many are on struggle street and going backwards, including many young middle income earners with young families, just as many are very happy to see this ludicrous situation continue because they are doing very nicely with all this capital gain.
Sadly, we have become a very self interested society and the current govt and their policies are just a mirror of that.

The solutions are obvious and have been for a long time:
Supply:
- open up more rural land for housing
- allow greater density in urban areas with fewer rules
- halve GST on new housing to help compensate for the very high cost of building
- govt and councils to get more active in building housing

Demand:

- reduce immigration
- stamp duty on foreign purchase
- capital gains tax

It's not rocket science. The govt just doesn't want to execute the necessary suite of initiatives because most of its constituents are benefiting from the status quo. Pure and simple

I would add sort out competition in the building materials and construction market. That government needs to be pro market not pro business.....

Why would you even need to address the demand side if you fixed the supply side issues?
I agree with:
- increase in available land
- increased density
- central and local govt. to focus on infrastructure planning
- Increase competition in materials and labour

Do not:
- touch GST on building materials. This would cost more than it would benefit.
- Central and local government active in the housing market. I'm sorry, but this would be the most inefficient thing we could ever do. The last 10 years have proven this.

Do not introduce any demand side restrictions apart from a capital gains tax that is in line with our other PIR schedules.

Why would you even need to address the supply side if you fixed the demand side issues? Maybe by addressing the demand side could take pressure off the supply side as it is not keeping up is it?

What has the last 10 years proven - that central govt. eliminating social housing has contributed to the current problem? That expecting "the market" to provide affordable housing is an effective policy?
Where is the analysis that modifying GST would cost more? Do you look at this only from a $$ perspective or have you included social benefits?

Economics and efficiency - will nearly always be an oxymoron.

"Why would you even need to address the supply side if you fixed the demand side issues?"
Because the core issue isn't demand. It is supply.

"What has the last 10 years proven"
It has proven that they are useless at providing housing supply. Regulations, poor financial management of builds, etc. They should not be in the business of developing land.

"Where is the analysis that modifying GST would cost more?"
You see, with a standard GST system like ours, we have a very efficient way of capturing tax. When you start adding modifications to this, like any constrained system, the outcome is always going to always be less efficient.
Think:
- Deciding exceptions
- Monitoring exceptions
- Policing exceptions
The savings would be eaten up on both the regulation and industrial sides before it could produce any social welfare benefits.

"Economics and efficiency - will nearly always be an oxymoron."
And this is why I hold most interest.co.nz commentators in lower regard than 12 year old youtube commentators.
The whole fundamental notion of economics is the efficient allocation of scarce resources. So, when you say "Economics and efficiency - will nearly always be an oxymoron" I have no idea what basis you have for this.

Correct Fritz but remember that NZ is run by National Government headed by John Key.

You Reap What You Sow.

Made mistake but election nor far ahead to rectify the mistake.

It's totally naive to think supply side measures alone will work. They simply won't.
What's wrong with halving GST on new builds? If it helps getting a lot more houses built then the lost revenue will be minimised. And can be compensated for by a CGT and a stamp duty on foreign buyers.
I don't advocate for Councils to develop alone. Rather, partner with private sector.

The core issue is a supply side issue. So, why is it naive to think that addressing that will not work?

What's wrong with halving GST?
Where will the benefit be? It is naive to think that the costs to administer such a change would be less than the benefit received. New builds aren't made out of just one material, or by just one contractor...

The problem with supply side solutions alone is that nz doesn't have the capability to deliver it in sufficient scale.
Hence the huge escalation in build costs over the last two years.
Tell me how this can be fixed. You need to convince me that these fundamental issues can be addressed so as to do nothing / very little on demand side.