The case to throw off the fiscal straitjacket
The authors of the Government's own housing stocktake argue it lacks the ambition to truly solve a multi-generational crisis because of a self-imposed debt limit. Bernard Hickey reports.
Almost by accident, economist Shamubeel Eaqub revealed the achilles heel that will bedevil this Labour Government during this term and beyond if it makes it that far, and he did it from the podium at the heart of the Government.
Eaqub was speaking at the release of the housing stocktake commissioned from him and fellow housing experts Alan Johnson and Philippa Howden-Chapman by Housing Minister Phil Twyford. During the question and answer session in the Beehive Theatrette, the former Goldman Sachs economist volunteered off the cuff that the Government's commitment to reduce net debt to 20 percent of GDP was a fiscal straitjacket that was limiting its ability to truly address the housing crisis and the various problems of child poverty, child health, housing unaffordability and poor education that flowed from that.
He said New Zealand had chronically underbuilt housing for the last 30 years and needed at least 500,000 more affordable houses to meet the gap, as well as a doubling of the state housing stock to 130,000 over the next decade. The current Government has plans to build 100,000 new affordable Kiwibuild homes over the next decade and to add a net 1,000 new state houses year (although Twyford is arguing before cabinet to double that to 2,000 per year).
"I want to see Housing New Zealand ramp up supply like we haven't done in the last 30 years. We have less housing stock today in state housing than we had in 1991, which was the peak. On a per capita level, we're at the lowest level since the 1950s. It is a frickin travesty," Eaqub said.
"There is an endless list of projects that are begging for money, whether it's housing or infrastructure. If we don't invest in this one area where there's an incredibly long waiting list, I don't see how we're going to get on top of the needs of the lowest socio-economic groups in New Zealand," he said.
He said any Government that did not borrow when interest rates were at the lowest level in a century was a "fiscal idiot."
"If you put on your economist's hat you'd say this was the best possible time to borrow money because money was cheap and everybody is wanting to lend you money and there is an endless list of projects that are begging for money, whether it's housing or infrastructure...we need to spend money on building up the capability of New Zealand," he said.
"Debt is the best possible way to do it. The fiscal responsibility rules are a straight jacket that are unnecessary and certainly when it comes to Housing New Zealand specifically, we should be gearing that up a hell of a lot to try to create more housing supply. That is under-geared."
New Zealand's net Crown debt is nudging up to 21.7 percent of GDP this year and Labour promised before the next election to get it down to 20 percent within five years of taking office. However, the OECD average is closer to 70 percent and the United States is proposing more than $1 trillion a year of spending increases and tax cuts that will increase its debt to GDP ratio from just under 80 percent to over 90 percent by 2022.
The Opposition has argued that New Zealand needs much lower Government net debt because households are so indebted and New Zealand is more vulnerable to losing the confidence of international investors because of that high private debt (over 160 percent of GDP) and the frequency of its natural disasters, including earthquakes.
'This is a man-made disaster'
But Eaqub and his fellow stocktakers argued that solving the housing crisis was an opportunity to solve many of New Zealand's social deficits around health, education and child poverty that were costing taxpayers billions of dollars a year in hospital costs, lost productivity and accommodation supplements. As a type of social investment to boost the well being of future generations, a massive housing build funded by borrowing would make economic and social sense.
Eaqub called for more ambition from the Government.
"If I was the minister, (and I'm not), my ambition would be to build 500,000 houses, not 100,000," he said.
"I think we're lacking ambition. If you look at our rate of building since the 1980s. It's been too low and too slow. Cumulatively, I reckon we're 500,000 houses short. Kiwibuild has to be firstly ambitious, but also to build on top of the what the private sector is already building. The private sector is not very good at building much more than 20,000 houses a year. We should be building at a rate of 30,000 a year to get on top of our problems."
Asked how that could be done given the Government's fiscal responsibility rules, he said: "Without being facetious, borrow shed loads of money."
Twyford was the most insistent about the way the housing crisis was limiting the next generation, although he brushed aside questions about the fiscal responsiblity rules, saying the Government was being ambitious and there were capacity issues elsewhere in construction that limited the Government's ambitions to that 100,000 homes.
"The housing crisis has changed and is changing the fabric of society. It's limiting our choices and affecting the life decisions that we make," he said.
"The health and education costs of homelessness, of transience and sub-standard housing are taking their toll on a generation of young New Zealanders, whose life chances are permanently blighted by the housing crisis."
Cost of transience and over-crowding
Howden-Chapman also emphasised the flow-on effects of poor housing on education and health, pointing out that over 60 percent of Maori children were living in rentals, which were poorly insulated and over-crowded. Over half of these homes had temperatures below 18 degrees, which was cold enough for children to get sick. She said the Ministry of Health had conservatively estimated that hospital admissions caused by poor housing were costing the health system $350 million a year, while accommodation supplements were costing over $2 billion a year.
She said more than 50 percent of children in rentals moved within the first nine months of life.
"This has fundamental major consequences for stability in communities. You start to see the issues of children not being immunised, not being able to go to pre-schools, because you have to be in the area to know to put your name down," she said.
"Headteachers are concerned about the churn going through the schools and it's hard to build up the social inclusion and stability when that occurs."
Eaqub was asked about an inevitable rise in interest rates and inflation if the Government were to borrow to build more heavily and how that would effect the economy.
"It's a question of where the fiscal spending is going. If the fiscal spending is increasing housing supply then you would expect the rental inflation wouldn't be very high. While you'd have higher inflation and higher interest rates, it would hit a particular part of society. It wouldn't hurt the lower half of New Zealanders, particularly renters. They would be harder hit if the housing supply didn't increase," he said.
The stocktake authors are not the only ones calling on the Government to revisit the 20 percent rule.
'When the evidence changes, you change your mind'
CTU President Richard Wagstaff said he would welcome a fresh debate about slowing down the pace of debt reduction, given the Government was now confronting much bigger infrastructure, social and environmental deficits than expected before it came into Government.
"We would welcome a revision in thinking about slowing down the pace of debt reduction," Wagstaff said.
"I suspect that the Government has found these issues are worse than it bargained for when it committed to that target before the election. I'd welcome a much wider discussion about the social and environmental deficits," Wagstaff said.
"I understand that the Minister of Finance and the Prime Minister are very determined that they are true to their word, but when circumstances change, you can change your mind.
That gives some permission to rethink things if the environmental and social changes mean taking a little bit of extra time to repay the debt" he said.
"We think the housing crisis is not so much a natural disaster as it is a man made one, and it needs to be addressed."
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