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Opposition says plans to sell off state houses and offer more income related rent subsidies will drive up rents

Opposition says plans to sell off state houses and offer more income related rent subsidies will drive up rents

By Lynn Grieveson

The Government has dismissed Opposition claims that selling off state housing while increasing the number of subsidised rents would be a gift for private landlords that drives up rents for all renters.

Labour housing spokesman Phil Twyford said the Government's plans to sell off an as yet unspecified number of state houses, while at the same time extending availability of Income Related Rents (IRRs), would make the housing crisis worse and the winners would be private landlords. The Green Party described the plan as "economically reckless" and liable to drive up both rents and house prices for everyone.

Appearing on TVNZ's "Breakfast" and at his regular post-cabinet press conference on Monday, John Key spoke about the government having a choice between building 1,000 houses at a capital cost of NZ$500 million or offering 1,000 income related rents (IRR) for 'third sector' social housing providers at a cost of NZ$12 million a year.

"You go and do the maths. It's a lot quicker for the Government to get social housing providers in there. They manage that stock better," he said.

Twyford said building more state and social housing – although initially more of an outlay than a rent subsidy – was "a one-off cost for an asset that will help struggling Kiwi families for years to come."

“John Key’s plan is a win for landlords. Rent subsidies are a continuous transfer of wealth to private landlords, which will drive up rents for all renters," he said.

“Vulnerable families will have to compete with other renters and first home buyers, making an already difficult housing market even harder to get into. And subsidies have only a short term effect, whereas a house is an asset that can support vulnerable families for decades."

Green Party housing spokesperson Kevin Hague said NZ$1.2 billion was paid out in accommodation supplements in the year to June 2014, "a policy that is already credited with driving up rents", and taking state houses out of the market would result in rent inflation.

“The provision of state houses by the Government delivers a supply of affordable accommodation. A good supply of rentals at a reasonable rate helps contain rents for everyone, not just those in the state house," he said. “That function no longer applies when our stock of state houses are sold."

Key and Housing NZ Corp Minister Bill English have yet to detail how many state houses might be sold off, or how the availability of IRRs might be extended.

English rubbishes claims, blames council planners again

On his way into parliament on Tuesday, English told reporters he expected to make more detailed announcements in the next two to three weeks and said he was surprised the opposition was arguing that extending the IRR scheme would increase rent inflation.

"If you went along with the Labour party argument you'd be abolishing all assistance for accommodation and we are certainly not doing that. I'm surprised. Many families are absolutely reliant on the Income Related Rents and on the accommodation supplement. In fact we pay the accommodation supplement for 40% of all private rentals in New Zealand and we are certainly not going to be doing away with that," English said.

"The big problem for the total number of houses available for low income families has been our planning regulation which has made it hard to build lower-value housing, particularly in Auckland but also in other parts of the country. And we are addressing that through working with the councils to get more lower value housing built. And we need that, because if we are going to have more Income Related Rents then people need to be able to find houses were they can live so that they can use the subsidy."

One point of contention in the debate over social housing reforms is whether all the money raised in state house sales will be recycled into building new homes, or be compensated by with increased Income Related Rent subsidies to expand social housing.

Asked if all the proceeds from state houses sales would be recycled into social housing, English said: "Certainly for the foreseeable future as much as we can. In the longer run if there's other people providing houses then the government wouldn't be giving them money for social houses."

Discounts for 'third' sector?

English said the government had "looked at whether we would sell houses at a reasonable price, maybe with a bit of a discount to community providers, to get them up and running, because a lot of them don't have a lot of resources but exactly how that will work is yet to be seen."

At his post cabinet press conference on Monday, Key repeated the government's line that Housing New Zealand currently had "too much housing in areas where it's not required and not enough in others where it is," before adding: "the other big problem we have got is that there is a really big advantage to someone who is in a Housing New Zealand home currently, receiving an Income Related Rent, over someone who is not," he said.

"So that makes a materially massive difference to those households. But what we want to do is make sure more people can have that Income Related Rent. The question is 'what's the fastest way of achieving that?'"

20,000 to be sold?

Speaking to reporters on Tuesday, Key said he expected the number of Housing New Zealand properties sold off would be "less than the numbers that have been bandied around, but let's wait and see."

Bill English and Nick Smith have previously talked about selling up to 20%, or 13,600 of Housing NZ's 68,000 houses, which are worth NZ$18.6 billion in total. Some media have reported up to 22,000 homes could be sold. Key would not answer directly how the proceeds of the sales might be allocated, and how much of it would be used to provide more IRR subsidies.

"You are talking about an operational item versus a capital extraction, whereas the better question to ask is 'will it be used to develop new social housing?' and the answer to that is 'maybe'," he said.

Balance sheet vs income related subsidy

"We are working our way through the policy and what we intend to do, and you will see all that laid out for you, but what I am saying is, one is an operational item where you make that payment of the income related rent every week and ultimately every year, and the other is the capital investment we have in the Housing New Zealand balance sheet and they are slightly different issues, but in principle there is a legitimate question to ask which is 'if money comes out of the Housing New Zealand balance sheet what happens to it?'. Does it get reinvested into other housing initiatives and the answer is, 'we will give you that answer very soon'."

"What you will see is a much larger proportion of those houses being offered by the social housing providers."

'We have the mandate'

Key dismissed opposition accusations that, in selling off large numbers of state houses, the government would be breaking its promise of " no more asset sales" and should have made the proposals a plank of their election campaign.

During question time in parliament on Tuesday (see video above), Key said the Government's intentions had been "foreshadowed for quite some time" and reiterated his claim that the focus on "Dirty Politics" and Kim Dotcom had left no room for National to discuss policy.

"The Labour Party was fixated with talking about everything other than policy and we know where that took them."

Former Labour leader David Cunliffe described this as "ridiculous nonsense, but par for the course with the Prime Minister."

"There were over 300 pages of policy on the Labour website from memory - certainly hundreds. A matter of only dozens on National's website," Cunliffe told reporters.

"I consider it deliberate deception by the government that they would not discuss their well-formed plans to privatise state housing."

Acting Labour leader Annette King, during question time, said: "Is the Prime Minister saying ... he never had even a nano-second to tell those he met he intended to sell off billions of dollars of state houses because he thought the Labour Party was busy talking about other things?"

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Appearing on TVNZ's "Breakfast" and at his regular post-cabinet press conference on Monday, John Key spoke about the government having a choice between building 1,000 houses at a capital cost of NZ$500 million or offering 1,000 income related rents (IRR) for 'third sector' social housing providers at a cost of NZ$12 million a year.
Has anybody challenged the costing?  The government's preferred choice of debt raising cost around 2.56% for the latest 2030 linker tap.
Hardly any difference in annual costs and no slippage costs due to private investor liquidation inconvenience, if the state owns the assets.  
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It's not just the costing but the capability.  On the one hand JK claims the third sector can built 1000 houses quicksmart much faster/cheaper than the government.
On the other hand BE wants to flick them off below market value because the third sector doesn't have the resources to get the houses otherwise.

Scratches head

Those costings are premised on new State houses costing 1/2 million dollars each!
Given that the Government can bypass many of the pesky problems that add costs to the rest of us, $500,000 seems a tad expensive.
The government do not need to worry about zoning. What is stopping them buying up rural land at rural prices, building some State houses, then rezoning the lot residential.
The government would also be in a perfect position to negotiate down Council fees, perhaps by offering to provide the needed infrastructure directly rather than paying inflated fees.
Of course the biggest fee -GST is just an accounting exercise for the government.
Buying in bulk, factory builds, smaller houses and importing cheaper materials to bypass expensive NZ duopoly material prices and I think those State houses shouldn't cost more than $300,000.

Brendon, some of us don’t want to carve up the productive countryside and cover it in cheap, factory built, soon to be leaky ghettos that further strain already strained infrastructure.  You miss the root cause of the problem. 

1. Little boxes on the hillside,
Little boxes made of ticky-tacky,
Little boxes, little boxes,
Little boxes, all the same.
There's a green one and a pink one
And a blue one and a yellow one
And they're all made out of ticky-tacky
And they all look just the same.
Read more
New Zealand looks like an extended shantytown when one arrives direct, non-stop from London/New York.
And, yes I live in a 1950s NZ wooden box on the hillside overlooking the sea - it does not  compare well to small villages in the Hamptons..

Isn't it ironic that when it comes to housing, older is better.  Scratches and cracks become character, we rip up carpet so we can see old pieces of wood.  100 year old cladding still intact because the builder who put it there actually gave a sh!t and would carve his mark at the end of his work and everyone in the neighbouhood would know who built each house and his reputation/career was staked on it being a good job. 
NZ, unfortunately, will never have towns/cities nearly as beautiful as Europe. 

I want to knock down mine and build that high rise down to the road at sea level - cannot get permission - will eventually, but not in my life time. 

The government doesn't have to concentrate all its building efforts on the fringe. There is plenty of Crown land within our cities that could also accomadate more housing.
All our cities have a land rent/price curve that starts at about $50,000 a hectare in the countryside and goes up to many $millions a hectare in the centre of our biggest cities. The government works within this curve when it builds state housing as much as the private developer.
The advantage the government has is that it can adjust the curve down -for itself in building state housing or for everyone. The government can do this by making it easier for densification to occur -by adjusting the rules and providing the necessary infrastructure for this to occur. Or the government can open up new areas for housing, again by adjusting the rules and providing the necessary infrastructure. Just allowing 'up' doesn't seem to work as the supply response is too slow, 'up and out' seems to be what works in places like Germany that maintained affordable housing levels. 
In Germany compulsory acquistion of rural land at rural prices is used on occassion to keep the land price/rent lower and Japan has used this technique more often allowing it to deflate its famous 1980s property bubble. Unlike the Anglo world of London, LA etc where the bubbles re-inflate.
There is no need for this new housing to be ticky tacky stand alone boxes. The government could for instance build higher density transit orientated developments like they do in Japan and Germany to provide affordable housing. Really it is about considering the common good. If you are interested about this sort of thing it is well discussed and also
What the government shouldn't be doing is providing subsidies to drive up the land rent/price curve and then selling off Crown land at this inflated price. This is crony capitalism that transfers wealth and income from the productive sector to the unproductive sector of the FIRE industry.

All done so we can accomodate endless growth, what's the end game?  Grow forever?

What is your solution Happy123? Is it to sacrifice the middle and lower working classes to some new 'environmental feudal state'?
P.S. Letting people build decent homes at decent prices today doesn't seem to me to be premised on endless growth for ever more. 

Simple, one in, one out, immigration policy stabilising NZ population to what it is today.   Give the market time to catch up on supply then prices will stabilse, forever. 
"sacrifice the middle and lower working classes"
"'environmental feudal state'"
Scare monger much. 

So now Happy you are changing your argument from normal density housing causes the loss of productive farmland and some environmental growth ceiling argument to some completely unrealistic immigration scheme.
Family reunification, Australian free labour movement, NZ's refugee and Pacific Island commitments mean your 'one in one out' plan will never get the required support.
P.S Happy changing the topic is a signal that you have a weak argument.

Not changing any opinion...  no more growth, no need for ever increasing numbers of houses (low or high density).  It's perfectly possible to change our immigration target to 0, some years it's a little up, some years its a little down, long term average can be worked to 0. 
To squeeze another million people into Auckland is madness, you're saying "this is how to acommodate the madness"...   I'm saying "stop the madness".  You're treating the symptoms, I'm curing the disease.

It's also driven by Kiwis coming home from Aus and the UK as times are tough over there, and by kiwis not leaving in the first place.  Can't stop Kiwis coimg home.

Bernard is still the only one beating the demographics drum. But anyone who has anything like a realistic plan for the next 30-50 years has to be aware that we are in the population end-game now. Demographers are still predicting global population stabilisation by 2050 maybe a little earlier. And 2050 is now within the planning horizon for central and local government.
NZ has been "sub-fertile" for some decades now. The fly wheel of population dynamics means we still have a healthy natural population increase but that will drop over the coming decades to the point where our population starts to decline. At that point we can pick and choose our total population with a high degree of precision. So we can actually use real numbers now instead of conceptualising all the time.
Should we be scared of urban expansion? Hardly. Auckland, if it maintains the same average growth of the last five years, will top out at just over 2m. The extra 600,000 people will need about 470km2 of open spaces to be urbanised. The total land area of Auckland is currently 4,900km2 so it shouldn't be too hard to find.
Putting aside the personal values that dominate anti-sprawl arguments there is no compelling economic argument to preserve the existing farmland around Auckland.  On average our farmland is not hugely productive. By area it is completely dominated by pastoral farming, a lot less devoted to semi-intensive dairying and cropping, and a miniscule amount devoted to horticulture (not really thinking forestry here). Besides which, as waymad often points out any urban expansion would only carve into under-utilised lifestyle blocks anyway. 
470km2 won't even touch the sides.
But here is the kicker. When JK mentions $500k land/house prices he neglects to mention that $100K-$200K is just a windfall gift to a landowner because they know they can sell the developer land valued for housing rather than for farming. In a world where there is true competition in the development industry that money can be put to better uses.
Auckland City is currently infarcting because it can't raise $16b to make transport work in a dense city. Letting those 600,000 new residents build on "farmland" would free up $40bn compared to making them build in pre-approved zones.
$40bn buys a lot of infrastructure.

Well done. Someone finally gets it. Also included in the $500K for new housing is a large amount of GST -about $75K which could also go towards infrastructure.
I am not suggesting that all of those 600,000 new residents should go to the fringe. But if some of them did at competitive farmland prices for residential developments then it would help to reduce the land price/rent curve which would benefit affordable housing developments within the city too.

You’re kicking the can down the road… we’ll stop growing at 2050… why not now?  Carving up lifestyle blocks has been going on for decades now just down the road from me in flat bush, they build pretty bridges and new 4 lane roads…  but the problem is those new roads point at/to the same overcrowded motorways.   So saying 40bln would be freed up by building on lifestyle blocks is blatantly untrue, to the contrary it would increase the need to spend more on the existing network unless you think the people in Flat Bush never leave FB.   It’s not only about transport, it’s about quality of life, and it’s about not having everything from the boat ramp to the local beach overcrowded. 

Why not now boils down to two things: (1) our natural increase was 30,000 this last year and (2) the 45,000 net migration total included many NZ citizens coming home to live and many Australians who have the right to live here without asking permission.
Possible solutions to cut population growth to zero now, now ,now:

  • big step up in the euthanasia programme
  • cancelling the passports of all NZers currently out of the country
  • compulsory castration of men based on some arbitrary criterion like stupidity

That should go well

Or stop issuing new visa's/passports to new migrants and cancel the extended family clauses that circumvent attempts to only import skilled migrants.  If your implying that NZ is helpless to control it's population that is just not true. 
I like your option 3 also. 

It looks to me like we can control about 20-25% of our population growth (legally and ethically). Any time spent worrying about that portion while we are doing such a shit job of accommodating the other 80% is time wasted.

Thanks for that. It reinforces my point that we can control very little of the population growth. Using your figures we might only be able to prevent 10% of the population growth at best.
Pretending that we can solve the housing crisis in AKL by shutting off the immigration spigot is numerical nonsense.

I really like #3 too.
Ever seen that movie 'Idiocray'? 
It's becoming scarily less like a work of fiction and more and more like a doucmentary about New Zealand politics with each sitting at the Beehive......

Endless growth. Isn't it Brendon, tell us then, where does it stop? 

Raegun growth will stop when it stops. The demographics as Kumbel and Bernard indicate that point is approaching. I don't have a problem with that.
I also don't have a problem with tightening up on immigration and restricting foreign investment in rental property. But these policies will take time to have any effect and they are not a silver bullet in any case.
In the meantime what do we do?
I have a problem with people who want to artifically stop urban growth before population growth has stopped with stupid planning rules and constipated infrastructure provision because it transfers wealth and income from the poor to the rich and from the productive to the unproductive.

Bzzt.  Already happened, Happy Numerics.
175,000 lifestyle blocks.
Squatting on (queue drum roll and issue cliche alert) "good productive agricultural land".
Growing ponies and thistles.

So Waymad according to your link lifestyle blocks take up 10% of our productive farmland.
Lifestyle blocks are low density housing. Google streets around places like Clarville and Ohoka in Canterbury. They are basically villages - they have schools, halls, a petrol station and a weekly farmers market (Ohoka). Yet no affordable village density housing, which would have fifty times the density of the neighbouring lifestyle blocks. These communities are all one house to four hectares. Only the well off can afford to buy four hectares of land so automatically NZ society is splitting into exclusion zones based on wealth.
We like to think NZ is a fair go society where your success will be from hard work, productivity and creativity but increasingly it is about property ownership. The property ownership of location rather than productivity like farming. Where are we headed?

To repeat each 4 hectare lifestyle block -the standard size down here in Canterbury consumes 50 times the amount of farmland per household compared to the traditional NZ housing suburb.
Lifestyle blocks use more land than all the other urban areas combined to accomadate just 175,000 households. Most of these households are just playing at farming. It is more about ponies, motorcross and the occassional cheap farmkill for the bbq.

We'd be balmy to the nth degree to chop up productive land, I fear for the Bombay Hills and what's left of good Pukekohe growing land. With that and turning every other skerrick of land to dairying we will not longer be able to grow our own meat, fruit and veg. We are mad.

The government is doing that already, but using private builders rather than doing the building itself.  
Hobsonville Point.
Through in 10% state housing like the original Labour plan, paid for by land appreciation. And you solve the state housing and private housing crises in one go.
Build the northwestern busway so people can actually get there and then it's perfect.  I don't know why the government is just sitting on this rather than rolling it out around the country.

In the US there has been an expansion in the passenger rail system. In places like Atlanta the transit operator is getting into the real estate business. Developing new stations with the commercial and residential leases around these stations providing a good revenue source to assist in repaying the capital costs. The homes in these areas have been in hot demand going up something 40% from memory.
There is no reason Kiwirail and bus operators using new dedicated bus lanes could not be encouraged to do the same in NZ.

Because demoncracy puts too much power in ignorant nimbys thats why; no way the govt. would get away with doing that.

40% of all private rentals are subsidised by the taxpayer.  
This serves to distort rents as well as house prices.
The government needs a plan to get out of this mess, not exacerbate it. 

Point is - it's not a "market" rent if the taxpayer/government is subsidising 40% of the "market". Take the taxpayer out of the equation and you will see a corresponding drop in "market" prices.  The government subsidy needs to be withdrawn in a well planned, staged manner to give everyone time to adjust. But it is completely possible.

Hmm - a 'plan' to 'lower house prices and rents'.
Or, put another way, to deflate an undoubted bubble.  Gently. 
Much greater minds than mine have tried and failed at this:  bubbles tend to go 'poooof ' when deflated.  They aren't car tires.
Some consequences: last seen during the late '80's when highly leveraged farms came unglued in a relatively minor way:

  • immediate compromise to the balance sheets of exposed-to-sector lenders
  • Immediate submergence of many borrowers - 'underwater'
  • immediate lack of liquidity as everyone rushes for the apparent exits
  • immediate contraction - read, job losses - in the FIRE sector 

Common taters may care to add some more, and yes, there will be many, many more consequences.....

Gee how many do you think the average car can sleep

Current evidence if you look around some of the outer beach parks in Chch would suggest 2-3 for a sedan and 4-5 for a mini-van.

'Rent control' is always an option when stress levels get high. Could save the taxpayer too.

Yes, problem is this government seems unable to think past subsidies - as is evident in their present hints at discounting the asset sales of state stock. So subsidise the private provider into the asset - and then subsidise the rent they eventually charge. Plain madness.

Works in New York and has done for many decades.

Rent control can only work if you policies in place ensuring a prompt housing supply response. Otherwise the market reaction will be a shortage. In other words an increase in the number of homeless, those living in caravan parks, cars, garages, under bridges etc.

Or the current 'end-run-the planners' gambit:  Tiny Houses.

Ah...the "Snugglepot"....very catchy!!!
Fed up with flat're going to need a SNUGGLEPOT !!
Getting married...or shifting in with your partner.....have you got your SNUGGLEPOT.....
Has the wife kicked you out of the bedroom for snoring......well here's the perfect solution a SNUGGLEPOT....

Yep. Muldoon's "wage and price freeze" (actually only wage freeze) went well. Not.

So as per eggs in venezuela, regulate the price on the shelves and no one will supply.
dont think we want to go there...

Its a bit harder to relocate your house than it is to turn a truck around to ship your eggs to a different market.  An empty house/apartment still has rates and mortgage payments to be made.

Jeepers.....Master there some sort of shared DNA profile with the late Robert Muldoon?
However one word that you used that is the problem...."control"......get rid of that and housing shortages and rent subsidies etc would be a thing of the that would be a saving to the taxpayers and the Government !!!

However with the Govn propping up the rent, it isnt "market" its distortion.

Lifestyle blocks protect good productive land from being exploited by agribusiness. If you actually look at lifestyle blocks you will see much greater biodiversity created by tree planting and generally much better land use. More shelter, less erosion. More care about water quality and wetlands. Much higher bird populations. More native vegetation. Protection of rare breed genetics. Less exploitation of livestock. Many small businesses operate from lifestyle blocks such as tree nurseies, bee keepers, vegetable growers, nut farms, small manufacturers, mechanics, travel agents etc etc. Some sell internationally via websites. The alternative agribusiness is usually just a commodity play and often bludges off the commons via pollution and subsidy such as the irrigation subsidies being dished out by the current govt and councils. SMPs anyone?

...not to mention sit and wait until land use changes ..and then whamo..subdivide and cash up...more tax free loot..

The overwhelming majority of state tenants will be more than happy to pay more rent than before, to a private landlord. The state tenants know thay will be better looked after in private rental accomodation.
Private landlords are much more considerate of their tenants than are government employees.

Maybe, but I dont want the government to pay my taxes in the form of rent to cover the extraordinary cost of capital duped property investors end up paying to each other in this madness called a bank financing facilitated merry-go-round.
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I expect a civilised society to help the poor and unfortunate amongst us, but not the profit making endeavours of the banking and property speculating community, especially when the OBR bail-in clauses throw the depositors under the bus in the inevitable bank lending solvency crisis. There will be a never ending stream of state dependents because of today's political actions, undertaken by the National Party.  Capitalisation of state handouts ensures as much. 

I'm occupied paying taxes to enable the likes of you to do it on my behalf. Why keep a dog and bark yourself. But I would prefer to buy a dog.