Kiwibuild and housing in the modern capitalist economy

kiwibuild construction

Joel Cosgrove

At their most recent conference Labour leader David Shearer, under immense pressure from both inside and outside the Labour Party, announced a keynote policy which promises 100,000 new homes to be built over the ten years following a Labour Party electoral victory in 2014.

The response to date, with a few exceptions, has been divided according to two positions. The first is that Labour’s policy is a rebirth or reaffirmation of the principles of the first Labour government. The second position is that Labour is simply announcing an unaffordable election bribe, and that the policy is simply middle-class welfare and an example of big government. Both positions are analytically superficial.

In a New Zealand Herald DigiPoll survey released on January 10, over 70% of respondents approved of Labour’s promise to enter the housing market to build 100,000 low-cost homes over the next 10 years, with only 26 per cent disapproving.

This is portrayed as being a return to old-Labour values, a line in the sand ideologically with the National Party. However, below that hark back to the past, much of what Labour has presented is more aligned to a modern neoliberal perspective than a social democratic framework from the past. 

Both Labour and National have a policy of eroding state housing.

Both Labour and National have a policy of eroding state housing.

At the core of this policy is an unflinching focus on the middle class ‘swing voter’. This is symptomatic of a recent trend of chasing the centre voter which continues to move rightward. This is despite indications from regular State of the Nation surveys that the general perspective of the population remains to the left of the major political parties. And so, the focus of Labour’s policy is towards providing “affordable” private housing in areas where it is currently hard to purchase such houses.

The problem is that in Auckland alone, the population is expected to increase by over one million people in the next thirty years, requiring 13,000 houses a year to be built, just to keep up with demand. Currently there are 3,000 houses being built per year. Labour has correctly identified a ‘market failure’ and yet their answer, largely, is to continue with the trajectory of the last 30 years. Namely privatizing existing state housing land and running down what is left in order to justify selling it later. In the Q&A released alongside the announcement of their housing policy, Labour has said the following in relation to where the land to build on would come from;

“Much of the land will come from HNZC buying new land or building on existing developments. Labour will also use public land and look at reconfiguring and subdividing some existing state house land as opportunities arise.”

What this means in practice is a continuation of the current National policy (begun under Labour) to subdivide and demolish  state housing. This is currently seen in the Auckland suburb of Glen Innes.  along with the arguments that it’s better, more efficient, to build state housing ghettos than spread around the country, around each city, or arguing that state housing tenants have no right to enjoy a house near the sea (as is made in Glen Innes).

Another important question is whether $300,000 is affordable for a first home purchase. Clearly Labour’s policy is for a very focused programme that ostracises a whole layer of people for whom $400,000 is far beyond their means. The only major critique from the left has been from Mana’s John Minto who has said, “It is a worthy policy and we will support it. But where is affordable housing for families on low-incomes? This entire group has been disregarded in Labour’s announcement today” and “No low-income family will be able to afford $300,000. These families struggle from week to week and will never be able to save a deposit or meet the mortgage repayments required for home ownership. They are caught in the vicious squeeze between high private rental costs and the government’s impossible criteria for eligibility for a state house”.

It is important that we understand the role of housing in the New Zealand economy, why Labour chose to unveil this as their keynote policy and why it is seen so favourably. Housing plays an important role in the New Zealand economy. Ideas such as the ‘quarter acre dream’ as well as the effect of the 1987 share market crash have cemented the role of housing as a central aspect of investment and financial security.

As opposed to the relative abstract/fictitious nature of shares, a house is a concrete thing. One can see it and live in it. After watching the value of shares drop 14.7% it’s not unnatural to have an aversion to the special form of speculation that is the stock market. According to figures from the Reserve Bank, in 1980 debt was 47% compared against an average family’s income. The income-to-debt ratio rose quickly in 1991 and peaked at 153 per cent in 2009 before falling slightly to 143% in 2011. What these figures demonstrate is the changing role of the traditional family home or second rental. What used to be a future superannuation asset or left for inheritance is now used as a present asset to leverage off.

Alongside the rise in debt has been a lowering of workers real income. Real wages have dropped by 25% compared to 1982. (See ‘Exposing Right Wing Lies’ by Mike Treen). What we see vis a vis housing is that this rise in debt, mirrors the collapse in workers incomes. 97% of debt is mortgage debt according to the reserve bank. What keeps the lending going is the ever increasing rise in house prices. 2013 prices are higher than at the peak before the global financial crisis in 2008.

Labour's policy would bring new houses into the speculation game, laying the basis for a new boom and bust.

Labour’s policy would bring new houses into the speculation game, laying the basis for a new boom and bust.

The mortgage industry is based on speculation. Even if someone has a mortgage at 95%-100% the assumption is that the increase in house prices will increase to cover any danger of forced sale. Individual forced sales have little impact in the wider ‘market’ beyond the ability to profit off someone’s loss and their need for an immediate sale.

On the other hand a tipping point can be reached, such as in the U.S. when over 6 million people were given foreclosure notices in 2008-2009. This creates a collapse in confidence amongst others paying back loans because of the collapse in house prices. This happened in Detroit where some where some house values collapsed by more than 90%.

While over five billion dollars combined was lost by 240,000 people from the collapse of the 19 finance companies since the financial crisis, the integrity of the core banks and their mortgage portfolio has survived relatively unscathed.

In New Zealand, forced house sales rose from under 500 in 2008 to over 3000 in 2009 and flattened to around 2500 per year. Mike Donald of land and property information provider Terralink said that “The concern is that while we think we may be through the effects of the recession, it’s still proving to be pretty tough out there.” When pushed for information on how many houses are potentially in a situation of foreclosure he replied “How many other properties are close to being forced into this situation? We can’t answer that question.” ANZ Chief Economist Cameron Bagrie also has few answers. In an article promoting the economic future of the New Zealand economy, he said, “Things are getting better out there; it’s not universal, it’s not across the board.”

This is the broad economic context of Labour’s housing policy. All they are doing is the bare minimum; what the “market” is totally failing to do. This policy is not going to solve any fundamental problems in the New Zealand economy, if nothing else it will only encourage and bolster the status quo by bringing 100,000 new home owners into the speculation game.

If Labour carries out this housing policy it will be done on the basis of profits, whether people live in them is merely a secondary aspect. It’s estimated that the subsidy involved in getting these houses on the market in the policy’s price range could be anywhere from $50,000 to $150,000, a fine profit for whom ever manages to gain access to one. As there would in all likely be an excess demand for these houses, a lottery would be involved for those who can meet the financial requirements. In that sense the policy is similar to the Working For Families tax rebate programme begun by the 5th Labour government. The poorest families had no access to that either.

A programme to build 100,000 state houses for people to live in- as opposed to speculate on- would be radically different, as 100,000 new state houses would drive rents down in the private market. The increased availability of housing would undermine the coercive pressure that landlords currently hold in forcing people to make do with the high rents and often substandard housing.

As opposed to the first Labour Government when housing speculation was not a central part of the economy, capitalism in New Zealand today is heavily dependent on income from rental activity, capital gains and inheritance (not to mention speculation). The Labour opposition can’t fundamentally challenge one of the tenets of the neoliberal economy, speculation on private property. This is why the Kiwibuild policy will not address housing needs and why we must demand a democratically planned system with housing for all.

Christchurch housing protest

Christchurch housing protest

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Comments

  1. OMG, why is this so hard?

    * Build massive numbers of affordable, commodious apartments near public transport hubs, like in Australia. Forget the 1/4 acre block.

    * Restore living pensions so Kiwis don’t have to turn to rent-seeking,exploiting their fellow Kiwis just to avoid eating catfood in their old age.

    * Smash landlordism and house-hoarding with rent-controls, ownership caps and escalating Capital Gains taxes, till ownership levels and affordability ratios go back to historic norms.

    International Socialism has solved this problem in other times and other places, even and especially in parts of the United States, where the gains won in generations past still serve workers today.

    Thanks for calling out Labour. But lets put a more radical position and not buy into the false rhetoric and Neo-Lib bs in spite of ourselves, by pretending even for a second that this is anything other than a manufactured crisis.

    • I agree 100% with Linda that we have to be posing a programme for housing.

      I think it’s 100% wrong to say we have bought into neo-liberal BS by buying into a manufactured crisis.

      The point is that it is not a manufactured crisis. The problem is market anarchy, which we explain in the article.

      Thanks, Jared.

      • Respectfully, I disagree. Of course it is a manufactured crisis.

        In the 1980’s, western governments began their Neo-Lib campaign to roll back pensions. At the same time, banks took mortgage products, which had always been as boring as insurance and spun them up in a huge aspirational marketing campaign, convincing the middle-class that they needed to go into debt to fund their retirement, and that they needed to jump onto the housing boom bandwagon.

        House prices soared. An entirely new industry was born, turning over family homes like sod. Residential housing became revenue generating “properties”.

        Prior to this, every adult knew that the value of a house to buy was pegged to its market rents, and that a house should not cost more than 2 times the medium wage of the workers in that area. Now, rents and prices fluctuate like stocks, subject to the chill winds of speculators collusively moving in and out of areas, creating “micro-bubbles”, as now, in the Auckland CBD.

        Thousands of workers and beneficiaries have been tipped out of their homes, freeing them up for developers (as is literally happening now in GI) causing residential property to accumulate into fewer and fewer hands. These new super-landlords are the natural constituents, often kin of the National Party AND Labour Party leadership, at all levels of government.

        Lower down, the thousands of middle class aspirationalists who did jump on that bandwagon. A sizable percentage of whom now own more than 4 or 5 properties comprise a large swathe of the population. They add ballast to this doomed ship; they are as a consequence, complicit, and heavily invested in the continuation of this contrived situation. Of course, they are aware that the rising tide will eventually take them too if they stop for even a minute, but they believe they can stay ahead of it. Unfortunately for them, as repeatedly happens, many are caught out, and their property seized by the pirates at the helm of our rapacious banks. At regular intervals, interest rates are inexplicably forced up, the boarding hooks fly, and the banks reel in the suckers.

        Hell will freeze over, and you will be able to walk the length of Queen Street on the backs of the homeless without once touching earth before our government will allow this bubble-factory to collapse.

        When we remove this component of the economy from our analysis of NZ productivity, we find that there is almost NOTHING else going on here – outside of agriculture, the historic basis of the NZ economy, we have failed to encourage manufacturing or IT sufficient to create a diverse economy. Almost all of the discretionary investment that should have gone into that aspect of the economy instead went to the “easy-money” real estate sector.

        Soon however, the music will stop. NZ is one of the last remaining countries in the world where these destructive practices are still brazenly protected. NZ will either follow Ireland, into a property collapse, or Sydney, into Neo-Feudalism, where private home ownership is a practical impossibility for the working class.

        It’s time to smell the coffee here. The price-to-rent ratio in Auckland is 17 TIMES. That’s a completely impossible, unsustainable number. It’s on par with Manhattan. How is it even possible for tiny little Auckland to have a number like that without market collusion? It isn’t. Numbers like that take hard work, and systemic co-operation on the part of many major players, all agreeing together not to break out, not to compete, and not to kill the goose.

        It says that the free market (which is inherently anarchic) is NOT operating at all. Would that we HAD market anarchy, where builders could build cheaply, and building materials were competitively priced, and councils did not demand a sixth of the price of the development in fees, permits, reports and the like. All of these are barriers to entry, placed there by the HAVES to prevent the HAVE-NOTS from joining the inner circle.

        Until this is recognised for what it is, and tackled head-on, as corruption, no progress can possibly be made. This regime must be dismantled, brick by bloody brick.

        For further info:
        http://www.numbeo.com/property-investment/rankings.jsp

  2. At some point we have to ask ourselves whether the decisions we are making as a country are in the interests of the people, or of the market.

  3. Linda you are spot on, it is a relief to see some sanity in the analysis of the housing bubble.

    and Anon don’t use the word we in this it implies we actually have a say but to answer you anonamouse the decisions being made favour neither the people nor the market because the people are the market and the decisions made favour a small elite, mainly bankers and wealthy who manipulate the market/people

    Nothing is being done by either party because of the middle class who own a house no party would return house prices to reality and wipe 50% off houses who would campaign on that?

    Solutions? would Gareth Morgans universal benefit help solve this problem as the capital tax might dampen enthusiasm for capital gains and put more emphasis on income generation and the universal benefit would help the poor by freeing them from state control. So any boom in capital would be taxed and the wealth put back into the community It’s my pet idea at the moment.

  4. New Zealand’s housing crises/bubble is a perfect example of the relationship between the tendency of the falling rate of profit and a rise in speculation. Capitalists are profit seekers and if they can’t find profit in the real productive economy they’ll whip up all sorts of schemes in the finance sector through fictitious capital.

    ‘Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells.’ Marx: Communist Manifesto

    It’s only a matter of time before our ‘sorcerers’ can’t control the Frankenstein monster that is the New Zealand Housing Market.

  5. Linda says: “Would that we HAD market anarchy, where builders could build cheaply, and building materials were competitively priced…”

    I recommend David Harvey, The Limits to Capital, on why private allocation inevitably leads to speculation and crisis (or Marx, but Harvey deals more with neoliberalism and housing). Basically as you acknowledge it’s not a hugely productive industry.

    A capitalist system requires private allocation of capital by banks and financial institutions, those institutions need to turn a profit themselves, that leads to interest and speculation. Speculation leads to boom and bust. This can only be stabilised for so long, as it was between the post-war boom and the crisis/imposition of neoliberalism.

    I agree that the solutions are actually relatively simple: “…we must demand a democratically planned system with housing for all.” There are more empty houses than there are homeless people. However, this solution is ultimately incompatible with a profit system that demands increasing financialisation, so we will have to fight for it.

  6. Linda. You don’t seem to have read my article closely. If we got rid of this housing bubble then that would expose the 25% drop in income levels, which if it were exposed would be a collapse would be at a similar level to the collapse of the Cuban economy.
    Part of my point is that this generalized housing crisis is now a structural component of NZ capitalism and global capitalism.
    People weren’t “tricked” into this structurally (there would have been many individual cases I’m sure) but it was a rational response to attacks on living conditions and wages, with steadily inflating prices, it does seem a relatively safe move.
    When you say “OMG, why is ths so hard?” I think we need to be a bit less glib and see why this has proven so hard, it’s not as if we’re basking in much proactive success. We’ve sucessfully defended a number of things from further neoliberal enoachment, but if it’s all so easy and straightforward, why has it been so hard to get any momentum?

    With regards to RossC. What you’re going to see is a brutal ‘market correction’ as the capitalists readjust the economic framework as the bubble collapses, trying to palm it off as a consequence of ‘the market’. Reformist parties always try their hardest to steer away from revolutionary situations…

  7. a brutal market correction is your friend.

    can’t build a new house on old foundations

  8. Jared Phillips says:

    HI Linda,

    Market anarchy has nothing or little to do with builder’s building cheaply or councils issuing permits or how high a fence is. Market anarchy, in Marxist terms, means that there is no central organisation of a market and the market is therefore prone to over-supply and under-supply. This is a situation which describes the housing market perfectly.

    That a portion of developers and rent-lords find a common interest in using, as you say (and actually as the article says), housing for the purpose of revenue generation and investment does not mean that the housing market is planned. That situation is very much an expression of market anarchy.

    Over the last couple of decades property has become a medium for the monopolisation of wealth. That is still market anarchy as there is no central plan for housing. The monopolisation of wealth is just a central aspect of capitalism, it is not a special plan, or manufactured, it results from market anarchy through which the pursuit of profits is the key factor for the organisation of the economy – rather than social planning.

    The other problem with your view, which isn’t a Marxist one – it is a more conspiratorial one, is that governments and capitalists don’t have any interest in manufacturing crises. Capitalists and capo governments would far rather avert criticism and rebellion than manufacture a crisis. I agree that there is a social crisis in regard to housing but inherently it’s a consequence of a profit-driven housing market, rather than of some type of manufactured plan worked out by a government-rentlord-developers alliance.

    You just have to look to Europe or the US elections to see the impact of crises or struggling economy on capitalist parties. For example the Democrats struggled against the view that they had been unable to resolve foreclosures, increased unemployment, etc. They do not purposefully manufacture these social crises, the social crises are a consequence of policies which support or prop-up capitalism. In practice this means that they ensure the working class takes the brunt of economic crisis through increased social crisis, but wrong to say they manufacture crisis.

    In short crises, over-supply, under-supply, imbalances, etc are all part of the normal functioning of capitalism, anarchy of production.

  9. This crisis is about the manipulation of the markets by a central authority. The flood of money into the global economy from government debt creation in the western world and japan has been the leading cause of the spike in house prices.

    Japan is the source of most of the carry trade and American government debt supported spending has created a bubble of money that has flowed through the world.

    This excess money lowered interest rates and coupled with deregulation of lending practices allowed banks to load the public with debt as they pursued growth in excess of actual economic growth. Everyone was happy with the idea that perpetual growth can be achieved with cheap money poured into houses.

    So now we have different groups,an older group with capital gains and no debt who are happy for things to remain a middle group with large debt who want prices to rise and a lower group unable through income to raise the debt.

    To maintain the current situation New Zealand imports people with money to continue the price rises or allows foreign ownership by people with a more direct line of access to this cheap money.

    To fix the problem properly would result in pain to all current home owners.

    A massive building program would create inflation leading to higher interest which would kill those with high debt and a high dollar would destroy exports, ultimately such a program would result in high government debt at some point this would crash our dollar. We would end with high inflation, high debt and no exporters.

    To stop foreign and local speculation and allow house prices to revert to their natural levels would leave many with lower capital than they planned or with mortgages under water.

    Either way any government is trapped that’s why nothing is done except blame councils or the RMA these are safe options as they may increase the boom temporarily.

    This is why I suggest you encourage those on the right to continue their policies, it will result in misery and suffering it will result in pain and social breakdown but ultimately it will result in the collapse of the system that you despise. As they push their ideology to it’s limits the system will break down and they will turn towards alternatives either socialism or nationalism/militarism to fix what they have created. at this point you step forward.

    Any attempt to fix the failings of the current system only extend it’s life.

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