The only thing more predictable than rising house prices is the tenor of stories as monthly data from governments or the real estate sector are reported. Record highs in particular places, predictions of trends from economists. Or, the young couple who managed to get on the housing ladder, but upon reading you realise it was with financial help from parents.
However, behind these articles a much larger housing story has gradually unfolded. An account of huge and growing inequality. How a government policy designed to respond to the global pandemic and the fear of economic recession has not just created significant wealth, but distributed it in such a concentrated way that it will change the nature of Aotearoa New Zealand for generations to come.
Our story starts in January 2020 as fears of the coronavirus began to emerge. The political focus quickly turned to the deteriorating economic outlook and cheap money was pumped into the economy via lower interest rates and quantitative easing. There were warnings at the time from the Reserve Bank to Grant Robertson, the minister of finance, that this policy may increase wealth inequality by raising asset prices. And, when uncertainty was making a mockery of many predictions, that particular advice proved accurate, if more than a little understated.
At the end of January 2020 the median house price in New Zealand was $612,000. By August 2021 it was $850,000. Prices are up 25% in the last 12 months alone. All during a pandemic that disrupted economic activity and confidence. And all consolidated on top of recent record price rises.
The Reserve Bank figures of the total value of the housing stock help translate this gain into a national picture of wealth. In December 2019 the total value of housing stock was $1.188tn. The most recent figures are from March 2021, which reveal that since the pandemic hit the total value of housing stock had increased by $324bn. For the team of 5 million mentioned so frequently in conjunction with Covid-19 this equates to about $65,000 each. But that windfall isnt shared equally among players, and to understand its effect on inequality we need to analyse who owns those assets.
People of European ethnicity are far more likely (58%) to own their own home or hold it in a family trust than Mori (31%) or Pacific (21%) ethnicities. This figure is also influenced by demographics, as the median age of those who identify with European ethnicity is 41, while Mori and Pacific peoples are 25 and 23 respectively. As may be expected, homeownership rates tend to increase with age. For example, around 78% of those between 70 and 74 own their own home, while around 21% of those between 25 and 29 do. People with partners are also much more likely (68%) to own their own home than those without (29%).
Inequality also includes how housing provides capital for future speculative investments. The number of properties held by investors almost tripled between 1986 and 2018 and the proportion of equity in owner occupied housing and land is at an all-time high. The average property value is now 7.9 times the average annual household income, the highest disparity recorded, and more evidence of how wages have very little to do with house prices, which has become more to do with the assets owned and access to finance.
As may be expected, with the financialisation of housing we have also seen an increase in renters. In 1991, 23% of households rented, by 2018 over a third of households didnt own their home. But again, this broad figure masks a significant difference. For example, the proportion of Mori living in rental accommodation increased from 41% to 77% between 1986 and 2013.
While government policy has been valuable in maintaining employment and staving off a recession, an additional boost to landlords is that it also ensures renters have the income to help service the loans on their investment assets. But, as renting households also pay a higher proportion of their income on housing than owner occupiers, and the median rent increased by 8% in the last year alone, they are further away than ever from homeownership.
It should be noted there are regional variations and nuances in this data that are difficult to discuss in a short article. For example, home ownership peaked in the 1990s and since has fallen systematically for all age groups and all ethnicities. But it has fallen much less for some than others. While aspects can be explained by the rise in investor ownership and property held in family trusts, it opens up further questions of who is more likely to speculate on housing or have interests in those trusts.
The pandemic response created national wealth and national debt. But it compounded inequality by giving the former to homeowners, older generations, and housing investors, and sharing the latter amongst everyone. The situation is made all the more remarkable as it happened under a Labour government with a leader who has campaigned on fairness and equity. For the team of 5 million, it is clear some players have been rewarded very differently to others.
This distribution is a particular problem in a country with a legacy of settler colonialism. One of the questions for economic historians is if, hiding behind the masking language of averages, medians, and percentages, we may have quietly witnessed one of the biggest increases in inequality for indigenous populations in generations.
To compound this situation, just before the pandemic hit prime minister Jacinda Ardern ruled out a capital gains tax under her leadership. So, this wealth, and the uneven opportunities and inequalities it brings, is set to become embedded in asset inheritances for decades to come.
So what now for a Labour government who speak frequently about social justice? Housing supply is part of the answer, as are increased rights for renters, but how can you even get close to addressing inequality based on inflated financial assets without reopening a debate on taxes relating to land, wealth, or capital gains?
While we can now begin to piece together the story of how the response to one crisis has helped create another, the key issue is whether this rapidly increasing inequality will become a problem similarly worthy of urgent policy attention.
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