Tap your heels together three times and think to yourself there’s no place like home… there’s no place like home… there’s no place like home…
Would Dorothy have thought any differently if her family rented their home rather than owning it?
In New Zealand (NZ), buying a house (or more than one) has long been one of the primary means to get rich. Potential first-time homeowners worry about getting on the first rung of the “property ladder”. The press crows about rising house prices. The Government wrings its hands over what to do in a manner that is politically acceptable and will get it re-elected).
A problem of our own making
NZ's house prices are crazy high due to a mix of economic, political and cultural factors:
Zoning restrictions and urban boundaries setting limits on how and where people can build.
Low-interest rates allowing people to borrow more for houses.
NIMBYism (not in my backyard).
Tax rules benefitting housing over other assets.
Geological restrictions reducing supply e.g. Wellington's hills.
High construction costs due to lack of competition.
What can only be described as a national fetish for property.
Zoning and boundary restrictions are probably the biggest issues in that list contributing to high house prices. Auckland for instance has restrictions on how high we can build and how far the city can expand. Where are more houses meant to come from if it's challenging to go up or out? It's unusual that in a country with a small population and as much undeveloped land as NZ that we have restricted the supply of land so much. Government and councils have a lot to answer for on that front.
Lost in the discourse on housing and house prices is the question of what kind of society NZ really wants to be. The structure of the housing market is of critical importance to society, with implications for a wide range of issues, from political participation to health and inequality.
Driven by higher housing costs, since 1991 the homeownership rate in New Zealand has declined. Particularly for those in their 20’s and 30’s. Given the decline, it's worthwhile considering what NZ is really missing out on as homeownership rates decline and housing becomes more unaffordable for more and more people.
Homeownership confers a variety of economic and social benefits
Increased political participation
A wide body of research has assessed the relationship between homeownership and political participation (as well as political beliefs). In general, the research highlights increased political participation among homeowners. The probable reason for this is, in broad terms, that homeowners have a greater stake in society than renters, driven by their significant financial investment.
Improved economic outcomes
This might seem like an obvious one, after all if you can afford a house, it stands to reason that you have a certain level of wealth and earning power, but there is some nuance to the point here.
Housing plays a key role in household saving. Specifically, paying a mortgage instead of rent creates stored wealth. The process required to repay also instils budgetary discipline through its regularity and reduces funds available to be spent on more frivolous pursuits. These benefits come on top of the wealth effect associated with rising house prices over time and not having to pay rent. The impact of positive economic outcomes may even pass on to the next generation.
Improved health outcomes
As if greater wealth was not enough, homeownership is even associated with better health.
Homeownership provides many individuals with a sense of emotional security and controls potentially improving psychological health. Homeowners are also less likely to have to undergo the stress of moving, and the associated mental stress of adapting to a new location. Homeownership may also be positively correlated with the likelihood to undergo health screening and greater healthcare expenditure, even when controlling for other factors.
The relationship between crime and homeownership is a complex one. Neighbourhoods with higher levels of homeownership display lower crime rates, but it’s not clear necessarily whether the act of owning a home reduces criminal tendencies, or whether prospective homeowners simply buy in neighbourhoods with lower crime rates.
Nonetheless, there is evidence to suggest that owning a home leads to behavioural changes (e.g. investment in home security), which reduces crime rates. The logic for this is that homeowners benefit significantly from a reduction in crime in their housing area, as lower crime is reflected in house price appreciation.
Bringing it all together
New Zealand is more than capable of creating an affordable housing market for its population – if the public will (and political courage) was there. Plenty of cities in comparable or worse circumstances than Auckland, Wellington or Christchurch have affordable housing markets. Take Singapore, homeownership rates on the tiny, land constrained nation are in excess of 90%, compared to only 65% in New Zealand. Why? Good public policy and a recognition of the positive benefits of homeownership to society (also less NIMBYism perhaps) are probable factors.
Given all its benefits, homeownership is a great social equaliser, acting to reduce the gap between the haves and have nots. Given New Zealand’s traditional aspiration towards egalitarianism – the runaway house prices we have today are a glaring contradiction.
Jacinda Ardern copped a bit of unfair flack when she put a portion of the responsibility on the NZ public for the housing situation. The reality is too many New Zealanders fight against the measures that need to be taken in order to improve housing affordability – as highlighted by the difficulty of building higher density housing in-line with Auckland’s unitary plan.
Two steps back, one step forward
Building consents issued over 2019 and 2020 have ticked up notably, with much of the growth coming from Auckland, and more consents for higher density apartments and townhouses than in prior years. Ultimately, if this does translate into more homes being built (consents are not the same as construction) and is sustained for a period, some housing unaffordability might be reduced. From a supply perspective, housing construction would need to grow faster than the population growth to see a meaningful improvement in affordability.
With average New Zealand home prices ticking up almost 20% year-on-year in December 2020, we are a long way from resolving the issue.
NZ needs more than brains, courage and heart to make houses affordable. It needs a cultural change. Gathering the political will and mandate for change is critical, but difficult in a society where property owners have limited incentive to support policy that could level-off prices. For homeowners, if not for renters, there really is no place like home.
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