New Zealand needs more houses.
Yet despite the simplicity of that goal, it’s been impossible to keep up with demand. This problem has persisted through both National and Labour Governments – several of each. As much as we might tinker around with the demand side of the equation, putting LVR restrictions up and down and tweaking interest rates, the gravity of the problem clearly lies with the supply side and our mindsets.
Other countries like Germany and Switzerland manage to supply sufficient numbers of warm, dry homes for their people, at the same prices as 1970 (inflation adjusted) so why can’t we? It’s partly because this isn’t just a housing crisis – it’s a mindset crisis. New Zealanders keep clinging tenaciously to outdated ideas that are wildly unhelpful and have been for five decades.
To alleviate the pressure on our housing and rental markets, citizens, and local and central Government will need to make some big changes. We need a bold vision, aligned incentives, with different industries working together, to build more houses. That can’t happen if we’re held back by antiquated, short-term thinking. Our mindsets are hampering us, creating unnecessary problems in what should be the best country in the world to live.
In her first post-Cabinet press conference this year, the Prime Minister wanted to know if there were any silver bullets to fix this crisis. Here’s a few big ideas.
The NIMBY and stick-build mindsets
A hefty chunk of the New Zealand population owns houses and likes the way the values keep going up. Not everyone who owns a house feels this way, but many do. These homeowners represent an enormous voting bloc; plus, they have the knowledge and resources to put up a real fight when they feel aggrieved. This creates considerable political inertia.
This inertia puts the handbrake on efforts to build faster, cheaper homes across the country. Strong objections emerge to any new developments in “our” area, with a preference for the construction of one-off homes that ‘fit in’ with the ‘character’ of “our” suburb, and a general want to protect their current wealth and lifestyle. New subdivision of prefab homes? Urrrgggh. Not in my backyard.
This mindset is a considerable problem because the way we build now is too large, too slow and too bespoke. We need faster and more cost-effective building techniques. That means using the full range of prefabrication types to their fullest capacity. This would allow us to build houses in factories, in any weather, then assemble them on site. There are solutions for metro, and solutions for the regions. Older Kiwis know all about prefabs: their mindset is coloured by visions of old post-war prefabs or boxy school classrooms. Modern prefabs are brilliant and would outperform our existing homes in terms of warmth, comfort and ease of construction. They can also look fantastic, too.
Considered logically, it is insane that a single draughty villa on a full section is somehow noble and desirable, while a warm, dry, affordable modern home, with a low maintenance garden, is an abomination because it looks too much like the house next door.
There’s no reason we can’t do this in New Zealand. We have the basic materials, with a flourishing timber industry and world-leading lightweight steel technology.
We could have the people power too, with a little training and investment, especially as we now have considerable capacity in our tertiary institutions with the flow of foreign students down to a trickle. I believe we could produce tens of thousands of houses a year – and we know the demand is there for these to be snapped up by individual buyers, community housing providers, cooperatives, iwi organisations, Kainga Ora, and private developers.
The ‘Government debt is crippling our future’ mindset
Our public mindset when it comes to national debt is another factor making it very difficult for the Government to do what is needed. Every time the Government “borrows”, there are indignant assertions that we are mortgaging our future, and that the Government is leaving behind an enormous pile of debt that will somehow cripple future generations.
We think about New Zealand’s finances in the same way we think about our personal finances: debt is bad, it must be eliminated as quickly as possible, and it’s better to cut back on spending than to keep borrowing. All that is perfectly true when it comes to household spending – fewer takeaways, cancel Netflix. But cutting back on spending for the Government means putting less money into essential public services and less investment in the future of New Zealand. It means those in charge have to think about how it looks to the public if they want to fund more money to fix a problem like the housing crisis. The Government’s “deficit” is the private sector’s surplus.
Should we fund the construction of hundreds of thousands of houses? What is the benefit? First, the investment we make in the housing market will increase the health and wellbeing of huge numbers of New Zealanders. That’s a massive payoff, well worth achieving. Second, when we invest in having a better standard of affordable living, Kiwis don’t need to spend their time worrying about where they’re going to live. Instead, they can think about getting promoted at work, starting a business, and having a family. All these factors improve New Zealand’s productivity, which is the main driver of an increase in the wealth of a society.
The ‘rates must not rise’ and the infrastructure is broken mindset
Rates are too high! It’s honestly hard to find anyone who will disagree with this statement. Councillors campaign by promising not to raise rates. Homeowners are unanimous in believing that rates are extortionate. Yet the same people criticise the council when there’s sewage in the streets, E coli on the beaches, and the water not only doesn’t taste that great but could be harmful.
Rates are not too high. The typical Auckland homeowner, for instance, might have paid $3,000 in rates during 2020 on a home that increased in value by $150,000 during the same period. There are people with homes that cost them $12,500 back in the Dark Ages and are now worth $10 million, and those people are particularly unhappy with the idea of higher rates.
They’re also unhappy with the idea of a capital gains tax, or a wealth tax, or an estate tax. Yet this increase in value derives from the commons – the proximity to services, amenities and neighbours. Those who don’t believe in carrying their share are a big part of the wealth distribution problem in New Zealand. They like the end of the see-saw they’re sitting on, believing firmly that their success is due to good choices and hard work, and they don’t want to tilt it even a tiny bit in the other direction.
Rates are an excellent way to specifically target housing wealth and start to redistribute it. They are also a great way to fix the local/central government disconnect that the Germans and Swiss have solved. The more houses you own, the more you pay. The more your properties are worth, the more you pay. If house values drop when we build thousands of new houses, your rates drop. If you don’t own a house, you don’t pay rates. We could adjust the rates calculations to put more weight on the land portion, rather than the ‘improvements’ (the house) of councils’ rateable valuation (your CV or RV). That could provide for a more accurate way to capture the highest rates from the properties in the most expensive areas. Put simply, rates should be higher and we need to change our thinking on this.
Higher rates can fund major infrastructure projects in your region, taking that burden off the Government. There’s no reason that councils should be grappling with overflowing wastewater systems and contaminated drinking water. All the infrastructure needed for local developments is also the responsibility of councils, and they need more money to carry out that work; tying rates to land values should help with that.
There’s also no reason that the consent process should be so slow – why not retrain tourism workers to process consents? They can work remotely from anywhere in New Zealand. We can also train and employ more Kiwis to speed up the consent process. We know our tertiary institutes have capacity at the moment and I know they would like some more enrolments.
Collect more rates, deal with local problems locally, issue more consents faster, and leave the central Government with more money and time to spend building houses at a national level.
The short-term mindset
Most of us are focused on our immediate goals: deadlines, bills, to-do lists. Thinking about national productivity, or future living standards, or infrastructure? Not only boring, but not your job. Your job is to focus on you and your family, and maybe your business. That attitude is perfectly natural, but it extends even into construction industry business owners and the other types of industries that support it. Without working together, we’re not going to get anywhere.
Last year’s pandemic demonstrated that we can pull together to protect and support each other, which is extremely encouraging. Our lack of houses is a national problem that’s stifling our productivity and leaving younger generations feeling helpless. Solving the housing crisis depends on us working together, on some wealth redistribution, and on a widespread shift in our mindset.
We need businesses large and small, central and local governments all working together. And they need us to support them in funding more, building faster and cheaper, and making New Zealand a better place to live for everybody, not just those who’ve already made it onto the housing ladder.