The ugly truth about our housing crisis

Perhaps it is not so much the supply and demand of land that is causing the problems as the supply and demand of money, writes Guy Marriage, a Senior Lecturer in Victoria's School of Architecture.

Crisis? What crisis? Pretending we are not in the midst of a severe housing crisis is like an ostrich sticking its head in the sand: if you ignore it, the crisis won’t just go away. Those inclined to glib and simplistic answers like to say our housing crisis is all a matter of supply and demand. Build more houses and then homelessness will magically vanish. But that simply isn’t the truth and the truth isn’t that simple.

Despite our much vaunted (and now badly tainted) image of being 100 percent clean, green and pure, New Zealand is actually one of the most urbanised countries on the planet, with over 85 percent of people living in cities and suburbs.

New Zealand is also proud of having been one of the most egalitarian countries, where everyone is equal (or believes they are) and where the majority of people can afford to own their own home. Briton Austin Mitchell called us the “Quarter-Acre Pavlova Paradise” back in the 1970s, and there are many who still aspire to a plump, green, suburban section, although the days of a quarter-acre are long since gone. A quarter-acre (1012m2) is about three or four times the size of most sections available today and if you’re in an apartment you get even less room to swing your proverbial cat.

Here’s the paradox, though: while section sizes have been getting smaller, houses have been getting bigger, so it is no wonder house prices have been growing like weeds. Fifty years of house price inflation have had a massive effect and while in the long-distant past houses may have been affordable they are certainly not so today. Our home ownership rate has gone from being the highest in the world to the worst New Zealand has seen for more than 60 years. New Zealand is now consistently one of the worst places for housing affordability, even though, as one of the most sparsely inhabited countries, we still have plenty of land.

Clearly, then, the old chestnut of supply and demand is not the only factor in play here. Perhaps it is not so much the supply and demand of land that is causing the problems as the supply and demand of money. In the 1970s, New Zealand was controlled by Robert Muldoon, who held a vice-like grip on the supply of cash. Inflation was rampant, mortgage rates were eye-wateringly high, and yet housing was a good buy for those that could afford it, as the financial gains could be immense. Those who bought in the 1970s made massively large gains, unachievable by those who buy today.

We are in such different times now. Money is readily available to almost all applicants. Quantitative easing by central reserve banks across the world has meant there is more money in circulation than at any other time in history. Banks have never been keener to provide this money to their customers, to get people into debt. Combined with booming amounts of inward migration by people with pockets full of cash, there is more money chasing a dwindling pool of available houses.

The cost effects of the current crisis are such that, unless forced to by legislation, there is precious little incentive for developers and builders to construct affordable housing. Let’s be frank and brutally honest about this: the average single Kiwi on the average annual income of just $49,000 a year finds a house affordable when it is three to four times their salary. That puts the truly affordable house price at between $147,000 and $196,000 – and you don’t need to rush to the property guide to know there is absolutely zero chance of finding that in Auckland, Wellington or Christchurch. Instead, our most desirable city (Auckland) has had average house prices hovering just under the $1 million mark for the best part of a year. Average house prices at some 20 times the average annual income – that spells crisis to me.

It is a simple but ugly truth: property prices need to come down. The Opportunities Party leader Gareth Morgan has set out the impeccable logic that if we don’t have a long period of enforced property stagnation we will have instead a massive property crash. Labour says the state should build 100,000 new homes as part of the answer, while National seems happy to sell off existing state houses to finance the creation of new housing. Who is right?

Part of the answer to the crisis is we need to build smarter, as well as build smaller. The days of one builder, with a dog and a ute, building one house at a time should be long gone by now. Modular and panelised prefabrication of houses is a logical solution that should lead us to a higher volume of houses, built better, faster and eventually much, much cheaper. Only then can we truthfully answer the question, “Crisis? What crisis?”

PrefabNZ and Victoria University of Wellington are hosting an evening panel discussion on the housing crisis, chaired by Guy Marriage and featuring politicians and others, at Victoria’s Faculty of Architecture and Design, 139 Vivian Street, Wellington, at 6pm on Thursday 7 September 2017. Register here.

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