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New Zealand housing policy
While most housing in New Zealand has been built and funded by the private sector, and a large majority of the rental market is provided through the private sector, the government has played a role in the supply of housing. For most of the second half of the 20th century, governments expanded the supply of state housing and supported the growth of home ownership as the preferred form of tenure for working families.
A public lending programme that tied State Advances loans to home building kept the housing industry buoyant and paved the way for the creation of a large group of property owners. Housing demand was dominated by families with secure earnings, and state housing generally functioned as an affordable transitional tenure that enabled workers to save a home deposit. Capitalisation of the Family Benefit helped to bridge any deposit gap. On the supply-side, policies such as a Group Building Scheme ensured that new entry level housing was affordable for first time buyers by only subsidising single storey houses limited to 150 square metres.
Over a 15 year period between 1951 and 1966, state housing averaged 6%–7% of the dwelling stock, and home ownership grew. Housing policy was tailored to suit the economic conditions that underpinned occupational mobility and entry to home ownership; and with the private rental sector offering choice and flexibility to the one in five households not ready to own, there was little incentive to develop not-for-profit community-based housing as an alternative to traditional state housing. For this reason, community-based housing is still an embryonic sector in New Zealand.
Since the 1980s, demographic and social changes accompanying economic restructuring have led to greater diversity of demand, involving much more fluid living arrangements, an increase in smaller households and later family formation. These shifts in the composition of housing demand will continue into the future. What is becoming increasingly apparent is that housing supply is not adequately adjusting to meet the emerging demand for affordable home ownership amongst households occupying an intermediate market position between state tenants and home owners. This intermediate segment of the housing market has been growing, meaning a larger role for private rental arrangements.
On the one hand, state housing now functions as a ‘safety net’ for those high and special needs households who are unlikely to be able to transition into affordable housing in the private market. On the other hand, analysis of new supply indicates that, notwithstanding the development of an inner city apartment sub-market, developers and home builders are no longer building ‘entry level’ homes that were traditionally supplied to first time buyers.
In the last 15 years, the private rental sector has expanded from about 20% to 28% of the housing stock, with new landlords drawn into the market in pursuit of financial returns. Rental accommodation helps meet demand for more flexible living arrangements, provides temporary accommodation for eventual home buyers, or permanently accommodates households that will never be able to afford to buy. The long term needs of disadvantaged groups have been met with state provision of social housing. While Housing New Zealand Corporation tenants have security of tenure, an increasing number of long-term renters are generally in short-term arrangements with private sector landlords. Community housing in New Zealand has been a small component of the rental stock and generally focused on the most disadvantaged people. Often the providers of social housing are also providing other forms of assistance to the group.
Lifetime renting exposes vulnerable households, especially low income families and the elderly, to the private rental market, while home ownership exposes owners to the risks and costs of home ownership. These are the households that would have the most to gain from the development of a not-for-profit housing sector to complement the state housing sector.
Impact on wealth inequalities
About one-third of the recorded rise in household wealth over the past three decades has come from the rise in real house prices – wealth per capita doubled between 1980 and 2001 and doubled again from 2001 to 2006 as a result of the house price boom. Rising house prices have therefore been associated with a large increase in the net worth of a large proportion of people in New Zealand. Those households that do not own property have not experienced this large increase in wealth. This may lead to widening wealth inequalities as those who own or inherit property experience rising wealth and those who do not own property find it difficult to enter the market. This increase in wealth has also enabled home owners to borrow against their growing equity to buy other properties, including rental properties and holiday homes. Of course, it is by no means certain that returns to home owners will continue to exceed returns to renters in the future, particularly if there is a period of no change, or falls in nominal house prices.