Has Labour Just Hinted at a Socialist, State Intervention Housing Policy?

I’m a gambling man so I will happily take odds on this one. All bets payable next Monday morning.

I see that Andrew Little has announced Labour’s new policy on fixing the housing crisis but will drop the actual details on the weekend (link here).

Somehow I don’t think the fact that he announced it days after National wheeled out its own policy for solving the housing crisis was a coincidence.

For Little this is a big opportunity, National have dropped the ball in regards to housing time and again and, as many have said, “mucked around the edges” rather than do anything concrete to fix a situation that shows no sign of fixing itself.

If Labours new policy has some genuine fixes to the situation and is not just another policy gimmick then expect this to be a game changer in the coming election because if you don’t think housing will be an issue in voters’ minds in 2017 then you might as well click off this page, shut the computer down and take a walk round your ultra-palatial, multimillion dollar, property because you are probably the only person in New Zealand that thinks so.

Housing has been a running theme for several years now but the magnitude of the problem is no longer able to be ignored or swept under the rug. If normally hands off National has been forced to wheel out some sort of “policy response” to address the growing concern then you know it’s a growing issue.

As Chris Trotter noted in today’s paper, National has nothing less than the removal of the state from the housing market in NZ as its stated goal and anything they do is not going to change that. Its new policy sounds less like a fix, as other commentators have already pointed out, and more like a desperate illusion of a government out of ideas and unwilling to upset its backers who profit from the current housing crisis.

And John Key knows this as his warning to party faithful at the recent party conference in Christchurch last weekend (just down the road from my house) was all about not being complacent and expecting to breeze into a fourth term.

Perhaps it was also an understanding that Brand Key has lost some of its gloss and simply relying on a series of public relations spin and plastering his face on billboards won’t fix things (unless someone is going to build houses out of those billboards).

So National has played its cards on the housing crisis and Andrew Little and Labour (scrappy rebels that they are) have seen an opening and decided to take it by announcing their own solution to the housing crisis.

This is the “stealing the narrative oxygen” strategy I noted a few weeks back and the potential to make big political capital off this is not to be sneezed at.

But as always the proof is in the pudding and we will have to wait until the weekend to find out.

The media has already done some speculation on what’s coming up (by linking it to Labours Kiwibuild policy) and Little himself has hinted some more by noting that whatever else the policy will do it will get houses prices to “a figure that’s affordable”.

But what is “affordable”? Is it around $500,000 as Little seems to think? And if we take his anti-speculator comments as real then these questions become even more pertinent as where is the line between owning a house and speculation? Is it when you own more than one house? Is it when the average property is around $500,000 (as opposed to the $1,000,000 it is now for a house in Auckland)? Where does it lie?

What policy prescriptions will be given that will do anything to stop a bubble housing market from getting bigger, or worse reducing the damage from when the bubble bursts? The answer to this looming bubble of doom and gloom is likely to be, say it with me, STATE INTERVENTION, as leaving the market to continue on as it has been will clearly do nothing and there is no alternate other than state intervention to address a clear market imbalance (if readers have any other suggestions please feel free to add them in the comments).

Don’t think Labour won’t go down this road? Afraid that the Labour of the past three decades will rear its ugly head and roll over for the market? Well you may be right but in the climate of New Zealand’s housing crisis as well as the international mood of growing dissatisfaction with the Status quo means Little and Labour would be mad to not a) propose a vote winning solution to New Zealand number one issue; and b) tap into the growing dissent around the same old same olds of politics in Aotearoa.

The alternates are not pretty, especially now that Labour in the UK has effectively decided that outright public squabbling is the way to go and the recent results at the ballot box in Oz show that voters can’t make up their minds either.

And Andrew Little will have been watching his counterparts in the UK and OZ and doing the math in his head. He knows, as do many many others, that his position is only as secure as the support he has in cabinet, public perception of him and the ability of the Party to counter the current government in policy prescription.

So wheeling out more of the same is not likely to gain support of the public or the party and this is not a crisis that will just go away especially when the Reserve Bank, fronted by Graeme Wheeler is warning of a “sharp correction” in the housing market.

So in my mind the die has been cast, Little and Labour are going to announce a new housing policy which will be in effect ‘State Houses part II’. It makes sense and it would address the problem. It also is a clear distinction with National which is going to be key to winning the next election.

The opportunity here is prime and for a limited time only. The effect on the situation if Labour announced a sure and dedicated expansion in affordable public housing would be immense and tap into so many strands of concern that exists today (increasing homelessness, price speculation, the housing shortage etc).

If Labour don’t have anything which is a real solution AND catches the public’s imagination then expect a long and painful 16 months until the next election. We have the next five days to speculate. Go!

14 thoughts on “Has Labour Just Hinted at a Socialist, State Intervention Housing Policy?

  1. If the only thing that people can talk about if the price of their house they are an utter bore and not worth knowing

    Houses are a non productive asset.

    Housing at government level should be a social policy not an economic growth policy.

    To use the speculative value of a non productive asset as
    a strategy for economic growth is deeply flawed.

    To paraphrase the words of the economist Dr Michael Hudson
    the only sectors to benefit from such a strategy is
    FIRE > Finance, Insurance and Real Estate.
    ( Google this man… he has published works and genuine academic grunt ! )

    Because the greater picture in all of this is wealth, power and control.

    And the banks do this through lending money.

    With the above in mind, perhaps it is fair to assume this may be one factor in our Prime Ministers decision to do very little about housing given his background with Goldman Sachs.

  2. The Prime Minister John Key is right about one thing. There is no “housing crisis”. A crisis is a “turning point”, and there is no strong evidence that the housing market in New Zealand has reached a turning point. However to the extent that he concedes there is a problem around housing, he is wrong about the nature of that problem, and very wrong about the possible solutions.

    The government (and most of its critics) believe that soaring house prices are the result of an “imbalance” between the “supply” of and “demand” for “houses”. The government thinks that increasing supply will resolve the problem, and its critics believe that restraints on demand will provide the solution. Both sides see “supply” and “demand” as abstractions devoid of specific content. They believe that people buy residential houses in the same way that they buy commodities like motor cars or investment instruments like bonds or shares, when that is clearly not the case.

    As a house, a house in Auckland is no different to a house in London, Durban, Shanghai, Kolkutta, Opotiki or Gore. What people are actually buying when they buy a house in Auckland is a social, economic, natural and political environment – probably, in most cases, more or less in that order.

    John Key is also right when he frequently alludes to that fact. However, he fails to carry the argument to its logical conclusion which is that people are not selling and buying a permanent asset. In this context, a supply side solution makes no sense, which is probably why the government has only talked about supply side solutions, and done nothing serious to implement them.

    The global demand for “houses” in New Zealand massively outweighs the potential to build new houses. Therefore twenty or fifty thousand new houses will not in themselves bring down house prices. A million new houses might make an impact, but not through the workings of “supply” and “demand” in the “housing market”. The impact would come from the destruction of the asset that is really being bought and sold – a social, economic, natural and political environment. That environment is being fundamentally changed by “growth” in the economy and population. If growth continues on its present course, or accelerates, the environment will also continue to change on its present course, and the consequence will be deep social divisions, economic problems, crime, conflict, unmanageable traffic congestion, and overcrowded cities and parks.

    Property prices can then be expected to fall, depending on the extent of the damage caused by the increase in supply of houses. So those who say that increased supply will solve the problem are partly, but only partly, correct. To take one scenario, a massive increase in the number of houses could encourage further mass immigration which in a context of gross social inequality could lead to civil conflict in which property prices would trend towards zero. That is an extreme scenario but it is more credible than the idea that supply and demand for houses can balance out in the same way as supply and demand for potatoes or television sets, and we have the experience of our own history (which the government takes care not to teach in its schools) in which the tensions and conflicts arising from mass immigration and unrestricted sale of land by those who claim right of property, ended in civil war.

    While the working class in New Zealand appears to be facing a housing problem, fundamentally it is not a housing problem at all. If all the world’s people had equal access to wealth and income, even in a market economy the New Zealand working class could afford to house itself, regardless of domestic or foreign demand. Therefore the fundamental problem is inequality. It is not housing, or health, or education or any of the things that are the immediately visible problems in a market society.

    As things stand, the working class are powerless in the marketplace when confronted by wealthy foreign nationals and a domestic upper middle class which has enriched itself hugely at the expense of workers over the past thirty years. Ironically, government has been able to keep the lid on popular discontent by the system of accommodation supplements, a ransom paid to landlords by the state in order to allow the working class to remain at work in the service of capital. This is unsustainable In an economy exposed to global competition, productive forms of capital will not, and cannot, continue to support a massive and generally unproductive landlord class in the manner to which they have become accustomed.

    However, the problem is that the great majority of politicians, from left, right and centre, are themselves landlords. (One exception, as I understand it, is David Seymour from the ACT party, which suggests that, unlike the rest of parliament.who in the fine old New Zealand tradition follow the lazy man’s road to wealth through property speculation and letting, he may be sincere in his professed desire to achieve an internationally competitive free market economy).

    Therefore, we can say that there is no “housing crisis” and that the housing market will continue along its present course until there is a real crisis. If and when that crisis comes it will not be a housing crisis, but a full-blown social and political crisis, out of which, and only out of which, will be found a solution to the housing problems of the working class.

  3. Edward and Geoff: perhaps this and this can help change your mind about there not being a housing crisis.



    It looks like the government might think its a crisis after all.

    I would also add that I have never subscribed to the idea that government intervention in the market should be based primarily on economic priorities or principles simply because a government that accepts market principles as its dominant theme becomes an extension of the market and is no longer a government.

    Govt structure, organisation and power in a modern society act as a curb on various forces/factors that would overwhelme a society if left unchecked.

    Libertarian economic theory likes the idea of a minimal state with only the bare bones of structure or enforcement in core areas like property rights and defense. The idea being that these factors cannot be left to the market.

    I simply expand the idea that while I don’t want bloated bureaucratic beast I don’t want an anorexic and starved creature which is either a prostitute to market forces or too weak to fend off predatory deprivation via either internal or external factors.

    Edward: Kiwis might be a bore when it come to housing but as a narrative in NZ society home ownership is a strong theme. It underpins the last three generations of Kiwis in NZ. Talking about ones house might border on monomania at times but that may just be the point. Kiwis have become obsessed with houses and making money of them.

    I would agree that debt is subservience and yes the PM does have an agenda and its not a good one.

    I do think the idea that using houses as the main driver for economic growth is flawed also and that is the issue at hand. But how did we get here?

    I’m blaming all the TV home improvement shows like the Block.

    Geoff: I am not a fan of an unbridled marketplace or having our MPs be landlords or overly wealthy individuals, it builds in too many risks and has lead to neutered policy.

    But its also leading to a state of affairs that, around the world, is no longer one of just sitting and taking it but dissent and disorder.

    If the housing market continues as it is then “market correction” will occur if government correction does not. I know which of those I would prefer.

  4. In my lifetime I have never known the Labour Party to be socialist. I don’t expect that to ever change.

    This situation is starting to get strange. There is a housing bubble; everyone knows there is a housing bubble; the housing bubble keeps getting bigger.

  5. James: You may be right but lets not mince words here, I’m not saying that Labour is socialist (although it could be argued by extension that saying their policy is socialist means they are socialist) but that if they are going to propose State Houses II then that policy will in effect be socialist as its certainly is not free market as public building and ownership of hoses by the state would fail that test.

    Come Saturday I could be way off on this, hence my comment about being a gambling man, but anything less than a wholesale policy to make new houses, and the market has failed to do that to any sufficient level, would have to be state driven and on a large scale to make any changes.

    To be clear its not just making hoses that needs to be done, prices need to come down also and again that’s not a free market solution given their slavish devotion to the “invisible hand” in its many iterations.

    Whats coming, even though no one seems to want to admit or discuss this, is that at some point, somehow or someway, the bubble is going to burst and house prices are going to roll back, that is one part of economics I do believe in and for good reason as it happens a lot and always in the wake of a bubble.

    But the difference between a state controlled or induced roll back and a much more drastic and catastrophic market driven roll back are polls apart, one will have some measure of control the other will not and the uncontrolled plunge a housing market could have may be one step too far for NZ and its rather brittle economy.

    When that happens we don’t have a housing crisis per se we have some other sort of crisis.

  6. The opposite of socialist is not free-market; the opposite of socialist is capitalist. It’s about where the financing comes from.

    The opposite of a free-market economy is a planned economy.

    Anyway, that recap aside, I don’t think 100,000 houses will do it (even if they do mean it and aren’t being creative in their interpretation). To solve the underlying issues they would have to take up some properly socialist measures.

    As for forecasting I look to Japan’s economy. They’ve been in relative stagnation for over 20 years, I think we will have a similar lengthy stagnation.

    Lately I’ve come to an unfortunate 1984 type conclusion: They can keep this economic system going indefinitely even though it barely works. Look at what happened after the GFC, hardly anything has changed.

  7. James: Im not really one to quibble between free market and capitalist as once you strip out the theory it seems to end up the same.

    That aside I lived in Japan in the wake of the bubble economy and Im not sure if the same would occur here. land laws are very different and the denisty of housing was less about speculation but more about all the US bucks that were sloshing around and an entrenched construction industry which did not want to go out of business and had political connections.

    Also Japan things got far crazier than things are here, the speculation had gotten down to the level of golf memberships while taking a mortgage was always a generational undertaking, spanning usually three generations and with land laws that prevented all but the most belligerent government or council to seize land from individuals.

    Also in Japan population density means that issues like urban sprawl do occur but thats more to sheer numbers (38 Million for the Tokyo/Yokohama/Chiba urban area) where Auckland has mostly single family houses and minimal apartment or stacked housing (something which a recent property developer in Auckland suggested as a solution).

    In NZ its sheer price and availability that’s driving the current situation. I forget the ratio of earnings to how much one spends of their annual salary but if I remember rightly its higher than its ever been. In Japan housing had always been a long term situation due to the costs involved, the sheer density the fact that land ownership was a new thing for many people after the feudal era and the speculation was almost pure with little direct effect on the earnings to payments ration that we have in NZ.

    Probably the easiest indicator for me was that in Japan getting a house was not a problem nor was the price, prices in any urban area are high unless you want to live a long way from a train station it was the size and location that counted and there was also the inter generational aspect of homes which meant that there was a range of incomes helping pay off the debt.

    As for your 1984 feeling I would agree with you in my less upbeat moments but on the other hand history is full of monolithic ideas and systems falling. Look at the church in Europe.

    The global economy will hit a wall as soon as the environment is degraded to such a degree that people cant keep hiding the effects or sweeping them under the rug. When that happens we will see change.

  8. I come back to the definition of “crisis” as “a turning point”. We know that when the temperature of the human body rises to 40 Celsius, it has reached a crisis point and if it cannot be lowered in short order, then the patient dies. However we don’t know what median house price will collapse the Auckland property market. The PM and the Reserve Bank don’t believe things have reached that point because they don’t feel it necessary to administer any measures to cool the market.
    My cousin in Hong Kong thinks only a median price of more than $4 million would dissuade Chinese investors from buying property in Auckland, which leaves a lot of upside for the market – if he is right.
    The median house price in similar markets – say Sydney or Vancouver – would also give some indication of how far the market could yet rise.
    It is hard to say definitively that there is no crisis, but the people who matter, the government, Reserve Bank, lenders and investors, don’t see a collapse coming anytime soon, and so can logically maintain that there is no crisis.
    The homeless don’t make a crisis. As far as the market is concerned they aren’t players and therefore they don’t count.

  9. Geoff: I would tend to agree with you on the technical aspects of the situation (ie when actually does it get named a crisis due to the “logic” of the market) but I would generally disagree on the actual mechanics (in that just because its not been labeled a crisis by a government in denial does not mean it may actually be a crisis in reality).

    There may in fact be no definitive turning point and it may be that relying on the market of your indicator is asking the mine canary for an opinion on the gas leaks after its already dead.

    I think that the crash/crisis we are all thinking is our indicator is the blazing fireball and smoke at the bottom of the cliff after the bus has gone over the side, the real “crisis” is the fact that we can see where we are headed but no one is turning the wheel to steer a new course.

    I also think that John Key telling the Reserve Bank to “get on with it” may be an indication that the government is starting to see it as a crisis. If the sub-prime meltdown in the US is any indicator then the market will sing happy songs right up to the last second and the government will gaily dance along.

    It would seem impossible that house prices would have to reach 4 million before we could call it a crisis, although it would be interesting to see if that is the choke point for Chinese investors/speculators. Lets hope not if nothing else is done.

    I am not a big fan of letting the market set the tune for how societies live, so in my eyes what the market “thinks” is the problem, not the solution, if it wishes to treat homelessness as a externality, then that’s just market speak for saying, the investors don’t care because its not affecting them, yet!

    If Auckland is facing a brain drain on top of the massive rise in house prices, if home ownership is really down to the level it was in the 1950s, if the ratio of yearly income to what you need to pay for your house is at a historic low (and thats a bad thing) and if the situation in Auckland is now starting to drive up prices elsewhere (which it seems to be doing) then weather we call it a crisis or not is going to be a semantic debate.

    The reality is that whats going on now is going to have a major shift on the landscape (both the real and metaphysical) weather we decide to take action or not, and the one of the casualties is the kiwi dream of home ownership and a growing class of rentiers, which if my memory serves me correctly was the reason that State Houses came into being and how the kiwi dream of the quarter acre pavalova paradise began.

    Killing that dream would gut this country of one of its most treasured narratives which all Kiwis have aspired too.

    I suppose the neo-liberal market state that Key and Co wants does not have any place for the economic stability given by a large population of home owners or the honesty and fairness that is part of being a Kiwi.

  10. I personally don’t see the housing market as in crisis, and in particular I don’t see it as a crisis for the working class, because that class is already effectively excluded from the market, so that whatever happens in the housing market is now only of academic interest to ordinary wage workers.
    That means that working families need to examine their options of acting outside of the market, which would involve dissent, but not necessarily disorder.
    It is possible for the working class to take assume control of the nation’s housing stock by degrees and in an orderly manner which protects the asset while making it available to those in need and deserving of a home.
    It is not a crisis for the government, Reserve Bank, investors or lenders and it need not be a crisis for us.
    The argument over whether there is a crisis may be semantic on one level, but on another level it is indicative of an attitude. If we see it as a crisis we are allowing ourselves to be overwhelmed by the market paradigm and the false notion of “events beyond our control”.
    A more measured and constructive response is to see it as a situation in which ordinary people can act decisively in their own rohe to ensure that the market shall not be allowed to deprive them of the necessities of life – starting with housing.

  11. I do agree that “crisis” is probably not the best term to define the situation but when I phrase it otherwise words like “situation” or “problem” do not have the same resonance to the the word crisis has. So for me, and others crisis it is.

    That said you are right that the working class is already effectively barred from the market but will it stop there? What if the others start getting barred, as it seems we may be reaching now.

    And yes dissent is on its way, I dont doubt that a “dissent” type situation is going to rear its ugly head if prices keep on going up and the grumbling continues.

    I am interested in your idea about the false notion of events beyond our control. Are you referring to within the market only or outside as well as I think I could list examples of both within and without.

    I would also be interested to find out how you feel about Labours new policy announcements to deal with this as it seems they may be of the same mind as you in their policy prescriptions at least.

  12. A big chunk of the middle classes, who have been enthusiastic investors in the property market over past decades are also facing exclusion, and that is why there is now a sense of crisis.
    The assumption was that the traditional working class could rent, move to apartment style living, or (although that was never said) live in garages.
    The middle classes, now faced with the imminent prospect of relegation to the working class, don’t like any of those options for themselves, and thus the growing unease among those whose main aspiration in life for the past four decades has been to own a property portfolio, in other words to own other people’s houses as well as their own.
    Aside from the weather and “acts of God”, “the market” is now judged the main source of “events beyond our control” and some people would like to maintain the fiction that we are as powerless to act against market forces as we are in the face of God or the weather.
    Yet we are really only helpless so long as we accept the rule of the market regime. Once we cut that particular Gordian knot, and act as free agents in the material world it is the market which becomes powerless.
    Disregard for the rules of the market may be ugly when it takes the form criminal misappropriation, which is why if we must have expropriation it should be orderly, fair and based on a clear set of moral principles.
    I haven’t become acquainted with the Labour Party’s new housing policies except to hear that the party would build 10,000 new houses a year when in government. Which should go some way to accommodating the 50,000 new immigrants arriving in the country every year, but might not be a lot of help to those New Zealanders currently shut out of the housing market.

  13. If you havent been reading about the death of the middle class you should, I think it would be quite up your alley.

    It is focused mostly on the US but I think there is enough to take away form such studies (and one very fine book) to apply in part to NZ.

    i do agree with your sentiment of not bowing down to the market or putting it above all others but opinions such as ours are a minority at this time. That may change with time.

    As for the immigration issue, while part of the problem, the solution is probably a lot more complex than housing because of the massive ebbs and flows in that sector over very short periods.

    After 5 years dealing directly in this area I have seen it go from a population loss for NZ to massive highs and the issue is less the numbers and far more the issues with NZs immigration systems and policies. But thats for another post and another day.

  14. New Zealand’s immigration policy is certainly worthy of study.
    Initially, immigration policy was determined in England, by the New Zealand Company and the Colonial Office, and it was entirely geared towards advancing the interests of the British state.
    By 1860 the number of new settlers was judged sufficient to justify the invasion of the Waikato, followed by twelve years of civil war and the ensuing confiscations. Then came a new round of immigration,designed to consolidate British military supremacy, to provide labour to work the newly confiscated lands and capital to yield a return to rampant land speculation. So it has gone on, with successive wars followed by new waves of immigration, and, as a subtext, the ebbs and flows of migrants buffered through Australia so that the colonial state would not be required to support unproductive labour in times of recession.
    For the colonial state, immigration has been the chief instrument of political and economic control, and thus for the effective subjugation of nationalist political movements and the exploitation of indigenous labour. Fundamentally, nothing has changed in the past 176 years.

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