Why didn’t Key allow more houses to be built?
Recently John Key’s administration has been accused of making Policy by panic because of it’s handling the housing crisis. A housing crisis which John Key will not call a crisis, despite using that term nine years ago when homes cost half what they do today in Auckland.
The strange thing is the problems and solutions were known nine years ago. The problems of inadequate housing supply and excessive demand leading to price bubbles were known in Conservative government circles.
Why John Key didn’t allow the housing market to be flooded with affordable housing as some Conservatives were asking for only he knows. But whatever reason it was, it wasn’t ignorance. The housing crisis has taken a long time to get to this degree of social injustice and economic strife.
John Key was aware of the housing crisis and promised solutions right from the start of his leadership of the National Party. When elected into office in 2008 he had a mandate to act on improving housing supply, but he didn’t and now eight years later he is the one panicking with rinky-dink housing schemes in the same way he accused the earlier Helen Clark administration.
The following is an article written by Conservative journalist William Rees-Mogg, for The Times in April 16, 2007, around the time when John Key was saying he could fix New Zealand’s housing crisis.
Sadly, The Times article is still relevant today. Lessons have not been learnt, solutions have not been implemented, greater effort is needed.
Life’s no house party for the ‘20-20’ generation
When the rich start to complain, one may be sure that the poor are already suffering.
The rich, particularly in London, are starting to complain about their children. It is
not that they are growing up to be feckless layabouts who will not settle down to a
real job of work. It is rather that they are serious young people, who have been to
university, and are looking for a job that will have some social utility and provide
them with a comfortable salary on which to bring up their own children.
They want what their parents achieved in their generation. And they are finding it
tough. Life for the young graduate in his or her mid-twenties is much harder for the
present generation than it was for the generations of the 1980s, or the 1960s. It is a
mistake to be young in new Labour Britain; it has become much more difficult to get
started in life, to find the first professional job or the first house.
As a result there is a new fashion in which the middle-class young leave home to go to
university at about 19 and then return home at the age of 24, because they cannot
afford to live anywhere else. During their absence at university they will have
accumulated a considerable debt.
Jobs are difficult. Not everyone can go into the City and earn the bonuses of
corporate finance. There are not enough openings, nor does everyone have the
appropriate talents. With the expansion of universities, employers have an
embarrassment of choice among graduates with respectable degrees — a 2:1 or
better — from universities that employers will have heard of — not necessarily
Oxford, Cambridge or Imperial College, but Exeter, Bath, Bristol, Nottingham,
Warwick or St Andrews.
Starter jobs are hard enough to find even for those who are well qualified — the
search can be a nightmare for those with low qualifications and no network of friends
were; many people have to go through a period of internships or work experience,
and may think themselves lucky to get even unpaid work.
The first job is hard to get, but for many graduates housing is the worst problem. The
Halifax has published statistics showing that in 70 per cent of towns in Britain key
public sector workers have been priced out of the housing market. The rise in house
prices means that 97 per cent of towns are now too expensive for firefighters; 99 per
cent are too expensive for nurses. If you want to be a teacher, and also want to buy a
house, you have the choice of Clydebank or Merthyr Tydfil. You certainly cannot
expect to live anywhere in the South East of England, such as those haunts of
plutocracy, Weybridge or Gerrards Cross.
It is the “20-20s” that are ruled out; they are the graduates in their twenties who are
earning something over £20,000 a year. The average pay of a teacher is, apparently,
£26,400 a year. Many graduates, even in better paid professions, will earn less than
that in their early jobs. A suburban semidetached house in Gerrards Cross, which
may have cost about £1,250 when it was first sold in the 1930s, would now cost
between £500,000 and £1 million.
The Government has to take the responsibility, just as it must take responsibility for
the pensions disaster. In 1947 the Labour Government introduced the postwar Town
and Country Planning Act.
Since 1997 there have been several reports showing that Britain is building too few
houses. The Government has had ten years to reform the planning system to bring the
housing market into balance. The housing boom has made housing unaffordable for
more and more people.
Demand of all sorts has grown. There are more households, more people are living
on their own and there are more immigrants, with more to come. Without any
improvement in housing conditions — which is badly needed — many more houses
will have to be built. They are not going to be built under existing plans. The current
shortfall is at least 100,000 houses a year, and even that would take ten years or more
to bring housing supply into balance with demand.
Apart from being complex, inefficient and bureaucratic, the planning system gives far
too much power to existing homeowners, “nimbys”, to prevent new building in their
area. The “40-40s” — those who are 40-years-old and earn more than £40,000 a
year — have an interest in maintaining a high level of house prices. The localised
system of detailed planning control puts them in a strong position to protect that
interest.
If one asked a competent graduate of a business school to design a business plan for a
national cartel to raise house prices to the maximum, it would have four elements, all
of which exist in our present system. It would license house-building, so that no one
could build a new house without a license, or even rebuild an old house or a
redundant barn. It would encourage developers to maintain large land banks in order
to benefit from rising prices. It would leak out new permissions only after long
periods of delay. It would combine this with an unlimited flow of mortgage credit and
relatively low rates of interest.
If you restrict supply below the market clearing level and increase funding, you will
inevitably create a bubble and you will lock people out of the market. That is what has
been done; those are the consequences that have followed.
Of course, this is an economic distortion that will eventually have to be unwound,
though cartels can last for a long time. It also causes great social evils. The poor
suffer the most. The housing shortage is bad for health, for education and for crime.
Semi-homelessness, living in hostels or bedsits, is a poor basis for getting a job or
winning promotion. In 1951 the Conservatives promised to build 300,000 houses a
year — nearly twice the present level. That promise swept the country and brought
the Conservatives back to power for 13 years. It was the young who voted them in.
That could happen again.
Post Script: William Rees-Mogg died in 2012 after a long and prestigious journalism career. He was 84 years of age. Although William would have called himself a conservative and was even a candidate for the Conservative party when he was younger, I find that articles such as this have a humanism which has cross-party appeal.
