State Housing: connecting the dots from the streets
Being an election year, so much has been said about state housing that frankly, I’m getting dizzy from all the political spin around the place.
It’s amazing what the politicians and their political parties are saying. So to clear my head, I decided to do some street maths to understand what it means for us, the people who “apparently” will benefit from the building of more state houses.
Why is it that all of a sudden there is this rush to build “affordable” state houses. If we go back to 2008 when this National Government came into office, we saw state houses being demolished or boarded up. Us, the low income people were told they were unsafe, that they needed to sell some to pay for the new buildings they will build, that there is no demand for social housing, and more spinning went on.
But what I’ve found that was really happening is this. When the government took those state houses off the market it reduced the number available. What happened is the government actually created a housing shortage – which I see was their plan all along – why? To attract investors into the housing market.
The government knew the housing shortage would be made worse because two other things were happening at the same time. First, is the fact that less than 5% of new homes being built in recent times were classified as social housing. The reason for that is because ‘property developers’ make heaps more profit by building houses for the rich than they would at the low end where we are. So no surprises there were more houses in the $500,000 plus bracket being built.
The second reason for decreasing supply are investors buying the cheap houses, subdivide them for rent instead of living in them. With one landlord owning say, 10 properties, that’s 10 more properties taken off the market. The other effect of taking those houses off the ‘affordable market’ is by decreasing the supply it increases house prices which means the chances of ordinary folk buying a house is low. With less people buying houses the number of people renting increases allowing landlords to keep rents at expensive levels.
All of those things play into the government’s plan of attracting investors by manipulating the market. You see, with those kinds of dynamics the government can now, through the Housing Corporation [remember they still haven’t built new houses, the boarded houses are still tied up so supply remain low], have the perfect excuse to offload people to private rentals, the perfect market conditions for investors to get and make heaps of profit.
So investors pour into the market where there are no shortage of renters with Housing Corporation offloading former tenants to private rentals. What makes it even better is the government steps in and top-up low income families with an accommodation supplement. It means private landlords can hike up their prices because conveniently, the government tops it up.
If my street maths is correct, that means the government is using taxpayers money to subside private rental/business owners. And that means that we, low income earners are paying private landlords twice – once in rent, and secondly through our tax. Last year, tax payers paid out over $1.2 Billion in accommodation supplement.
Now we know why social housing is a speculator’s dream come true. Let’s revisit the answers. It’s a speculator’s dream because (1) there is a secured low supply of housing thanks to the government’s help for taking many state houses off the market and not build new ones, (2) a continued high supply of renters so the market excuse justifies high rents. Thanks to the government for making it work by subsidising the rent shortfall for low-income earners, (3) big ups to Housing Corporation for maintaining the supply of state tenants to take up private rentals, (4) thanks to the government law change last year making state house tenancies reviewable so people cant stay in state housing forever.
And guess what, if that wasn’t enough, investors were given more. You see, there were no regulations (what they now call Warrant of Fitness for properties) in the market so investors did not have to spend money insulating or refurbish properties. With no ‘livable’ standards to adhere to, sub-standard houses were being rented out at top dollar.
It is why investors flocked to the market because it was easy money, just collect, collect, collect because with no Capital Gains Tax, they didn’t have to pay any tax on their investment(s). They can even claim expenses against their investment so the rent they receive actually pays off the principal of the mortgage because they can claim back the interest. If that is not speculator heaven then what is? Oh I forgot to mention that at the end, a renter walks away with nothing; while the landlord ends up with a fully paid house subsidised by the government and a secured tax-free income under current law.
Now, on the other side as the elections on 20 September get closer, I hear Labour proposing to build 100,000 new ‘affordable’ homes over the next 10 years if they win. Their Housing spokesperson Phil Tywford’s been clocking up the mileage promoting the policy.
Now, all of a sudden the Government has rediscovered their enthusiasm for building “affordable” state houses, with Minister of Housing Nick Smith and Deputy Prime Minister Bill English promoting their version of the housing rebuild.
So where does that place us people on the streets. Us, the potential tenant/buyer where do we fit into the picture? After all, isn’t this spin all about us the low income people who have to find warm, dry, safe, and affordable housing for ourselves and family?
Here’s the thing, the current Government does not support higher wages for low income workers. We know that because we just got an April fools joke of a pay raise when the minimum wage went from $13.75/hour to $14.25/hour on 1 April.
The current Government also does not promote job security, so for most Pacific Islanders and Maori workers they will be working casual type jobs and forever caught in the poverty trap through no fault of their own. Apparently, their crime is they chose to work these low-end jobs.
The Government then go on the offensive and blame these workers. So who are these workers? What type of jobs do they do? Why do they work these low paid jobs anyway? Why do they not get another job? Why are Maori and Pacific Islanders over represented in this low-wage group? I asked those questions to myself and I stumbled on the answer. To keep them out of buying houses so the market favours investors.
So instead of supporting a living wage and labour laws to protect vulnerable workers, the government wants to make sure there are more people unemployed and in non-permanent jobs so the masses keep the wages low as the supply of people desperate for a job remain high. That ensures the top 10% keep retaining the majority of the profits through contracts while the bottom stay at the bottom with no negotiating powers and casualised work to keep them there.
To keep the perception that government is working on making more housing available they made a law change to allow social groups to become landlords. It’s a great plan by the government as they manage to shift the responsibility to providers, and if they fail, then government is not to blame. Is it also part of the plan that these new providers are being set up to fail? I’ll bet my last tax credit that is the plan.
You can see it already. For these new landlords the environment they inherit is not the same as when speculators entered the market. They now have a new compliance regime. The rentals have to adhere to standards (warrant of fitness) so there are more expenses to pay to get into the market. At the same time, the government is making more affordable homes available. So as the supply increases, demand comes down, competition heats up which combined, will bring rents down.
So when these new social housing landlords find the market has bottomed out and their income is much less that they projected, eventually many of them will have to sell. And that is where this whole scheme lights up – who will be the buyers?
And that my friends is where all these social housing spins come to a stop. Because right now, there are investors already lining up waiting for that to happen.
They will be the ones that will be proclaimed as the saviours. But now we know, these are the guys who have been waiting to buy these houses at bargain prices, with all the compliance costs paid for, together with secured tenants. The majority of tenants are in no position to buy the houses if given first option because they don’t have secured, permanent jobs paying a living wage.
That my friends are the dots Sione’s been connecting for a while.
A word from the street to Nick Smith and Bill English, you are selling my misery to the market for a profit.