New Zealand has a worse housing crisis than the UK. So what’s its new Labour government going to do about it?

Auckland, 2004 vintage. Image: Getty.

What first strikes you about advertisements seeking flatmates in Auckland is how old the pre-existing occupants are. Encouraged by the spectacular demand for housing in New Zealand’s largest city, these mini-gerontocrats’ advanced years make them demanding cohabitees. Arriving in Auckland to take up a job with the opposition New Zealand Labour Party and beginning my search for a room, I encountered the quotidian bans on loud music, but also more esoteric promulgations on the acceptable times to fry an egg.

in Auckland, where a third of New Zealanders live, the housing crisis is even more acute than in London. The median house prices to median income ratio is, amazingly, higher. Nationally – the picture is likely to be worse in Auckland – 75 per cent of under 40s rent. (In London, it’s about 45 per cent.)

Private sector rents in the down-at-heel south of the city are comparable to cheaper parts of London, but here the housing stock is especially poor quality, and basic amenities are often lacking or prohibitively expensive.

This crisis was at the very top of voters’ minds when they elected a Labour-led government last month. One in three Aucklanders felt it was the single most important issue of the election. Notably – and, a cynic might add, of importance politically – concern was as high amongst the over 50s as the under 34s.

Labour has a bold plan to build 100,000 new homes in ten years: more on a per capita basis than UK Labour promised in its 2017 manifesto. Bolder still, in Auckland, where half the new properties are to be built, homes will sell at about half of current average value.

So how, and crucially, where, will these houses be built? And how will they be so cheap?

The policy most admired by the British left is the ban on foreigners buying existing property. This is expected to have an immediate effect on prices at the top of the market, and to ultimately redound throughout the market.

It is probably the only policy aimed squarely at reducing prices. But the effect of foreign buyers on prices is probably overstated; in both Auckland and London, foreign buyers account for under 5 per cent of property transactions.

The other major demand-side intervention is the plan to reduce migration by up to 40 per cent. The effect of migration on house prices is of course hugely contested. Some say the relationship is more correlational than causational – a strong economy both attracts migrants and makes house prices rise. For what it’s worth, a study commissioned by the previous government found the effect to be small, but the central bank found that a 1 per cent increase in population due to migration led to an 8 per cent rise in prices over the following three years.

Even if the reduction in new arrivals does significantly reduce prices, it may also have a deleterious effect on the construction industry, which needs a further 30,000 workers over the next two years. Combined with the planned rise in the minimum wage, this cut to migration could in fact push up house prices.

Even if prices fall (and a surprising number of homeowners favour this), such an outcome is not without risks. Britain’s trade deficit is made just about manageable by foreign direct investment in property, which includes behaviour such as foreigners acquiring construction companies. New Zealand, even relative to its much lower GDP, has a smaller, and declining, trade deficit, so could probably tolerate the reduced FDI falling property prices would result in.

However, as in the UK, pension funds are heavily invested in property. Moreover, the wealth effect – the phenomenon whereby homeowners spend more freely when they feel their property is worth a lot – applies as much in New Zealand as anywhere.

On the supply side, one might expect New Zealand’s proportional electoral system to result in less NIMBYism, but this is not the case. During the campaign, Labour was rightly accused of hypocrisy for opposing significant developments within already built-up areas. Instead, Labour promised to abolish the Urban Growth Boundary, which is similar in design to the UK’s green belts.

In reality, the UGB has been vitiated over recent years. It is perfectly possible for developers to obtain consent for large projects outside the boundary. In London, the Green Belt’s force – and expectation of its continued stringency – is revealed in the ratio of residential land value to green belt land value, which can be up to 100:1 for neighbouring plots. In Auckland, a 2007 study estimated the ratio to be around 10:1, but, as I say, the UGB has been substantially attenuated since.

This ratio shows two things. First, investors surmise, quite reasonably, that the restrictions may be further diminished in the future. Second, properties far from the city centre – whether inside or outside the current boundary – are not, or are not expected to be, especially sought after.

Herein lies the nub. Auckland’s transport infrastructure is appalling. About 50 public transport trips per person per year are made in Auckland – versus 1,000 per person per year in London. Without major improvements to infrastructure the very outer fringes of Auckland will not be desirable.

So building upwards, not outwards, in what is a reasonably sparsely populated city is the better option. Labour ducked this fight at the election, but soon it must be had. The evidence is that densification to a point improves cities: it makes public transport investment more effective, it encourages cycling and walking, and it enlivens high streets. Urban sprawl achieves the opposite.

I expect that Labour will fall short of its lofty aspirations, but, in raising housing to the top of New Zealand’s political agenda, the foundations have been laid for more forceful interventions in the future. If, over its forthcoming three year term, the crisis is not significantly ameliorated, the party will face siren calls on its left flank for interventions such as rent capping.

My message to those people is also my message to Auckland: grow up.

Kieran O’Halloran is a former New Zealand Labour Party Staffer.


What's actually in the UK government’s bailout package for Transport for London?

Wood Green Underground station, north London. Image: Getty.

On 14 May, hours before London’s transport authority ran out of money, the British government agreed to a financial rescue package. Many details of that bailout – its size, the fact it was roughly two-thirds cash and one-third loan, many conditions attached – have been known about for weeks. 

But the information was filtered through spokespeople, because the exact terms of the deal had not been published. This was clearly a source of frustration for London’s mayor Sadiq Khan, who stood to take the political heat for some of the ensuing cuts (to free travel for the old or young, say), but had no way of backing up his contention that the British government made him do it.

That changed Tuesday when Transport for London published this month's board papers, which include a copy of the letter in which transport secretary Grant Shapps sets out the exact terms of the bailout deal. You can read the whole thing here, if you’re so minded, but here are the three big things revealed in the new disclosure.

Firstly, there’s some flexibility in the size of the deal. The bailout was reported to be worth £1.6 billion, significantly less than the £1.9 billion that TfL wanted. In his letter, Shapps spells it out: “To the extent that the actual funding shortfall is greater or lesser than £1.6bn then the amount of Extraordinary Grant and TfL borrowing will increase pro rata, up to a maximum of £1.9bn in aggregate or reduce pro rata accordingly”. 

To put that in English, London’s transport network will not be grinding to a halt because the government didn’t believe TfL about how much money it would need. Up to a point, the money will be available without further negotiations.

The second big takeaway from these board papers is that negotiations will be going on anyway. This bail out is meant to keep TfL rolling until 17 October; but because the agency gets around three-quarters of its revenues from fares, and because the pandemic means fares are likely to be depressed for the foreseeable future, it’s not clear what is meant to happen after that. Social distancing, the board papers note, means that the network will only be able to handle 13 to 20% of normal passenger numbers, even when every service is running.

Shapps’ letter doesn’t answer this question, but it does at least give a sense of when an answer may be forthcoming. It promises “an immediate and broad ranging government-led review of TfL’s future financial position and future financial structure”, which will publish detailed recommendations by the end of August. That will take in fares, operating efficiencies, capital expenditure, “the current fiscal devolution arrangements” – basically, everything. 

The third thing we leaned from that letter is that, to the first approximation, every change to London’s transport policy that is now being rushed through was an explicit condition of this deal. Segregated cycle lanes, pavement extensions and road closures? All in there. So are the suspension of free travel for people under 18, or free peak-hours travel for those over 60. So are increases in the level of the congestion charge.

Many of these changes may be unpopular, but we now know they are not being embraced by London’s mayor entirely on their own merit: They’re being pushed by the Department of Transport as a condition of receiving the bailout. No wonder Khan was miffed that the latter hadn’t been published.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.