Lower house costs will mean modest expectations

THERE IS no easy answer to the problem of housing affordability, although the politicians pretend there is. National seems to think that making more land available, and lowering developers’ costs, will do the trick. It won’t. ‘‘More sprawl’’ brings its own costs, both public and private. And more sprawl is an unappealing choice in sprawled-out Auckland, where the problem of a shortage of suitable land is most acute. Moreover, making more land available to the developers does not mean more land automatically becomes available for more houses. Developers like to control the way land comes on the market in order to keep the price up.

Labour seems to think the Government can solve the problem just by building a huge number of houses. But the houses it is proposing are unappealing: apartments, terraced houses, small boxes. Will buyers rush to get them? The more desperate will. But once again, Labour’s solution will be, at best, a partial one.

The Greens propose a rent-to-buy scheme, but its arithmetic has been heavily attacked. Again, such a scheme might form part of the solution, but only if taxpayers are prepared to subsidise it. They might have to do so.

The Productivity Commission looked at some other problems, including the high cost of building materials in New Zealand. Its list of prices showed a truly astonishing gap between prices here and prices in Australia, and it’s difficult to believe that the gap is explained simply by the smallness of our market. Part of the difference may well be oligopoly, although the commission’s discussion of this was feeble and unenthusiastic. The commission finds this kind of argument ideologically distasteful, and so does the Nationalled government. So this quite important part of the problem won’t get the attention it needs, least of all from Dr Fix-it, Nick Smith.

The banks fuelled the last housing boom and are starting to fuel this one as well. Presumably there is a case for some kind of restriction on the availability of mortgages to make houses more affordable, but nothing will happen under this government or this central bank. The new Reserve Bank Governor Graeme Wheeler has shown himself to be narrow and purist, an apparent enthusiast for ACT-style policies. This narrow orthodoxy returns just as monetary orthodoxy is under fire internationally. Wheeler seeks to maintain a status quo that is full of problems for New Zealand, and then offers tired old nostrums as solutions. What a missed opportunity he has proven to be.

In the meantime, housing remains unaffordable for many. One thing is quite clear. It won’t be enough to lower costs and then hope that the market will solve the problem. It clearly won’t. Almost certainly, the Government is going to have to get involved and make sure affordable houses are built. There are deeper problems that will require not just a change in policies, but in attitudes. New Zealanders have got used to building ever-larger houses with ever more luxurious amenities in them. Young first-home buyers expect houses of a standard that their parents would have regarded as extravagant. In fact, the country as a whole cannot really afford the kinds of houses it now has. These were built during a long credit-fuelled binge that proved unsustainable.

Part of the complex and difficult solution to housing affordability, in other words, will be the hard task of cutting our expectations.

The new Reserve Bank Governor Graeme Wheeler seeks to maintain a status quo that is full of problems for New Zealand, and then offers tired old nostrums as solutions. What a missed opportunity he has proven to be.