In Part 1, I described a few of the implications of capitalism's success being decoupled from general wellbeing, equality, and environmental protection. I also described how capitalism is often compared to alternatives, but the alternatives, while socialist in name, are usually politically totalitarian as well as economically non-capitalist. Here, I expand on capitalism's impacts from a New Zealand perspective on housing.
***
For many generations, the mainstream Kiwi dream has been to own a family home on a quarter acre section. Indeed the same aspiration as a national identity is echoed throughout Western capitalist democracies. It's little surprise that this type of goal is common: a home offers shelter and security, basic human needs topped only by the likes of food, water, and air. As you would expect for a dream of this kind, it has historically been widely achievable, and indeed has been supported by government policy (see Ferguson, 1994).
As a fundamental need, we'd hope that all people have reasonable access to affordable housing. If that was not the case, then we have a system that fails to meet people's basic needs. Such a failure should be an indictment of that system in an amply resourced country. However, this failure is exactly what has happened in our apparently politically moderate country under the auspices of neoliberalism, and the oversight of both National and Labour governments.Within the space of a single generation, we have gone from a situation where a nuclear family with one waged adult could affordably mortgage a house in Auckland, to a situation where a couple, both waged with no dependents, cannot afford a home in many New Zealand urban centres, least of all Auckland where average house prices crossed the million dollar threshold in 2016. Current projections suggest over the next 20 years Auckland house prices will reach $3M. This enormous shift has happened quickly through the course of neoliberalism in New Zealand.
The neoliberal era in New Zealand began under the fourth Labour government with a raft of economic reforms, the nature and effects of which are detailed in Jane Kelsey's book, The New Zealand Experiment. Deregulation of the finance sector saw blooming stock market speculation (see Grant, 1997). However, following the stock market crash of 1987, real estate became the new, safer target for rapid wealth accumulation. For individual investors hurt by losses, this was simply seen as a smart move to avoid the international volatility of the stock market. Essentially, the model remained unchanged--an asset is passed back and forth between investors at increasing prices. Given that neither houses nor stocks are changed by these transactions, the added value on paper is not tied to anything tangible, owing only to the increased demand as the market for houses as investors compete with home buyers, and the assumption of increasing future prices.
The Kiwi dream aside, perhaps soaring house prices would be of lesser consequence if they did not impact renters, and if the conditions while renting were comparable to home ownership. However, this is not the case, as renters are impacted by house prices. In addition to the value added by spiralling prices, both houses and shares pay returns to investors in the form of rent and dividends respectively, which helps make highly leveraged speculation profitable, by covering or contributing to loan repayments. Thus, as nominal value of shares and houses rise, there are inevitable consequences for the expectations on those returns. For businesses, spiralling share prices mean increasing pressure to return ever-growing quarterly profits, which is a separate story in the history of neoliberalism. In the case of housing, rents have inflated in parallel with nominal property values, as seen over the past 20 years. On top of this, renting in New Zealand is difficult, undignified, and lacks security. Ours is one of the most oppressive and restrictive rental systems in the world.
How have these changes been discussed publicly? The majority of news media discussions of housing are business-focussed stories, which are restricted to whether real estate continues to be a good investment, what the next big locations for real estate might be, and how to continue adding maximum value to investments. The main fear discussed in such stories is around the stability of the housing market--is it a bubble about to burst? And what is the impact of foreign investment? In addition, socially focussed stories are presented in smaller numbers around affordability of homes for first home buyers, the impact of housing and rental prices on those close to the poverty line: families living in cars, which is to be considered sad and regrettable; families spending half or more of their income on rent, a worsening problem that has been making stories for more than a decade. Newspapers and news sites are structured such that these two types of stories are typically (although not always) found in different sections. Little effort is made to link the gains by a minority on one side of housing market with the hardships felt by many on the other side, despite them being directly causally linked. Certainly, solutions to the housing crisis have been given consideration in the media. However, when mention is made of a capital gains tax, or regulation of foreign ownership, the empirical truth is that the impact on the wealthy is given precedence, given the lack of action on either front.
No serious analysis can doubt there is widespread hardship felt in New Zealand, underlined by the almost 300,000 children estimated to be living in poverty in New Zealand, nor that this hardship has been exacerbated by rising rental property prices. Housing uncertainty has created additional inequality for children, including discontinuity in their education. Who is responsible for this worsening inequality? Privileged neoliberal discourse tends to point to deficits in the poor--that they are lazy and therefore have caused their own poverty, or more bizarrely that they are not poor after all, as suggested in a series of overtly racist Al Nisbet cartoons, published in several newspapers. The discussion over addressing poverty has been muddied by extended arguments over the definition of poverty, which have allowed the government to avoid setting any targets for reducing poverty. While there is a neoliberal tendency to dismiss the problem of poverty with a deserving and undeserving poor argument, no such case can be made for another, clear-cut example of the effect of residential property prices in the neoliberal era.
We now have a generation that will not own property unless they are fortunate enough to have the oligarchic support of property-owning parents. Due to exorbitant rent and house prices in Auckland, the city is rated as one of the world's least affordable cities. At the same time, house prices are continually rising, meaning the deposit required for a mortgage also rises. Under these circumstances, for those renting, saving a deposit becomes effectively impossible. No amount of 'hard work' or any other neoliberal mantra can change this situation. The younger current generation, and those that follow are being excluded from the Kiwi dream wholesale because another generation has been permitted under neoliberal reforms to treat housing as a simple investment commodity. The consequences of treating housing no differently than, say, collectibles such as antiques has been given little consideration in government policy.
Ultimately, neoliberalism does not do what it says it does. Neoliberalism purportedly encourages people to be productive members of society, and rewards them for their efforts. If we set aside the problematic concept of what is considered productive and worthy of reward in a system built around economic growth, neoliberalism claims to be meritocratic. What we have seen in the first decades of neoliberalism is precisely the opposite of a meritocracy. It no longer matters how hard young people work, they will be saddled with increasing debt, rapidly rising rents, an expectation to pay the pensions of the older generation while having to save to fund their own retirement, and have almost no prospect for the type of housing security that was previously effectively assumed as a right.
In a functioning meritocracy it should not matter much which generation a person was born in, they'd have access to similar opportunities. Given that we all owe an enormous part of our welfare to the past through the technological advances that have been built upon over time, each generation should be better off on average than the last. This progression will not happen for millenials and future generations under the current system because neoliberalism has created a situation where the privileged members of one generation have been able to not only take the advantages inherited from the past, but are borrowing from the future, quite literally from their own children. To point this out is not to place blame on the individuals who have taken advantage of the opportunities the system has given them, but instead to recognise that the system itself is faulty. The system is deeply flawed and simple tinkering will not restore fairness to it. If we can recognise this, and fail to act upon it, we do become responsible for what happens.
What is to be done?
If we agree that neoliberalism does not do what it claims it does, or more simply does not meet our needs, then it is time to reform the system. We need to transition from the current neoliberal system to a system in which, among other things, secure housing is recognised for what it is: an essential component of wellbeing and security, and a fundamental human right. Clearly housing is a symptom of much wider problems under the current system, which needs more radical reform than changes to housing regulations. Tacking on regulations to amend the neoliberal model simply does not go far enough to address the wide-ranging issues that market-led capitalism causes. The model itself is based on exploitation, and cannot be adequately constrained to alter this foundation.
Transitioning into a new system takes time. Specific policies can target housing in the interim before a new system emerges. The aim of such policies should be to reverse some of the changes that have occurred in the neoliberal era. Eventually, housing simply should not be open to the type of speculative investment in which profit is derived by inflating prices at the exclusion of first home buyers, or renters. Some regulatory avenues exist that could help us to transition in that direction: having different borrowing thresholds for home buyers and investors, where investors must provide substantially larger deposits than those buying a home to live in; introducing a capitals gains tax, or more generally a wealth tax; restricting or banning foreign ownership of residential property; encouraging cooperative banks that support community development over financial returns to investment; and, more affordable housing needs to be constructed as a priority.
We also need to change what are considered 'normal' rental terms in New Zealand. Conditions in rental contracts are oppressive: short, fixed-term agreements are standard; tenants are subject to regular inspections (up to every three months is standard), termination periods for tenancies are some of the shortest in the world, and are subject to no conditions; and tenants have no rights to modify the property in any way without permission--to the point of not being able to hang art on the walls without permission. In many countries with histories of long-term renting--a situation that we are normalising under neoliberalism--such conditions would not be accepted.
But more than any of these specific actions to address housing, we need to begin a dialogue in New Zealand. We need to ask: what is the world that we want to live in? What is valued in that world? What sort of a system would support those values? How does it differ from the one we currently have? There is growing awareness in Western capitalist democracies that we have the power to build a better system. We need to start thinking about what that looks like for us.
Bibliography/additional reading
Jane Kelsey (1997). The New Zealand Experiment.
A seminal work on the neoliberal reforms of the 1980s, and their impact on New Zealand.
Jane Kelsey (2015). The FIRE Economy.
An equally seminal work following up two decades on from The New Zealand Experiment. Kelsey details the transition into an economy based on finance, insurance, and real estate, and the huge risks borne by all of us to perpetuate capitalism under this model.
Andrew Dean (2015). Ruth, Roger and Me.
A concise account of the effects of neoliberalism in New Zealand by a scholar raised in the shadow of the 'mother of all budgets'.
BWB texts series.
All three of the above books are published by Bridget Williams Books, a crucial New Zealand publisher of political texts. BWB publishes a series of texts from a range of authors that cost $5 in e-book format.
The Next System Project (website)
An American project that is seeking models for post-capitalist, sustainable economics. Most importantly, the NSP publishes a valuable series in which models are proposed for consideration, among a rich collection of other writing and success stories.
***
For many generations, the mainstream Kiwi dream has been to own a family home on a quarter acre section. Indeed the same aspiration as a national identity is echoed throughout Western capitalist democracies. It's little surprise that this type of goal is common: a home offers shelter and security, basic human needs topped only by the likes of food, water, and air. As you would expect for a dream of this kind, it has historically been widely achievable, and indeed has been supported by government policy (see Ferguson, 1994).
As a fundamental need, we'd hope that all people have reasonable access to affordable housing. If that was not the case, then we have a system that fails to meet people's basic needs. Such a failure should be an indictment of that system in an amply resourced country. However, this failure is exactly what has happened in our apparently politically moderate country under the auspices of neoliberalism, and the oversight of both National and Labour governments.Within the space of a single generation, we have gone from a situation where a nuclear family with one waged adult could affordably mortgage a house in Auckland, to a situation where a couple, both waged with no dependents, cannot afford a home in many New Zealand urban centres, least of all Auckland where average house prices crossed the million dollar threshold in 2016. Current projections suggest over the next 20 years Auckland house prices will reach $3M. This enormous shift has happened quickly through the course of neoliberalism in New Zealand.
The neoliberal era in New Zealand began under the fourth Labour government with a raft of economic reforms, the nature and effects of which are detailed in Jane Kelsey's book, The New Zealand Experiment. Deregulation of the finance sector saw blooming stock market speculation (see Grant, 1997). However, following the stock market crash of 1987, real estate became the new, safer target for rapid wealth accumulation. For individual investors hurt by losses, this was simply seen as a smart move to avoid the international volatility of the stock market. Essentially, the model remained unchanged--an asset is passed back and forth between investors at increasing prices. Given that neither houses nor stocks are changed by these transactions, the added value on paper is not tied to anything tangible, owing only to the increased demand as the market for houses as investors compete with home buyers, and the assumption of increasing future prices.
The Kiwi dream aside, perhaps soaring house prices would be of lesser consequence if they did not impact renters, and if the conditions while renting were comparable to home ownership. However, this is not the case, as renters are impacted by house prices. In addition to the value added by spiralling prices, both houses and shares pay returns to investors in the form of rent and dividends respectively, which helps make highly leveraged speculation profitable, by covering or contributing to loan repayments. Thus, as nominal value of shares and houses rise, there are inevitable consequences for the expectations on those returns. For businesses, spiralling share prices mean increasing pressure to return ever-growing quarterly profits, which is a separate story in the history of neoliberalism. In the case of housing, rents have inflated in parallel with nominal property values, as seen over the past 20 years. On top of this, renting in New Zealand is difficult, undignified, and lacks security. Ours is one of the most oppressive and restrictive rental systems in the world.
How have these changes been discussed publicly? The majority of news media discussions of housing are business-focussed stories, which are restricted to whether real estate continues to be a good investment, what the next big locations for real estate might be, and how to continue adding maximum value to investments. The main fear discussed in such stories is around the stability of the housing market--is it a bubble about to burst? And what is the impact of foreign investment? In addition, socially focussed stories are presented in smaller numbers around affordability of homes for first home buyers, the impact of housing and rental prices on those close to the poverty line: families living in cars, which is to be considered sad and regrettable; families spending half or more of their income on rent, a worsening problem that has been making stories for more than a decade. Newspapers and news sites are structured such that these two types of stories are typically (although not always) found in different sections. Little effort is made to link the gains by a minority on one side of housing market with the hardships felt by many on the other side, despite them being directly causally linked. Certainly, solutions to the housing crisis have been given consideration in the media. However, when mention is made of a capital gains tax, or regulation of foreign ownership, the empirical truth is that the impact on the wealthy is given precedence, given the lack of action on either front.
No serious analysis can doubt there is widespread hardship felt in New Zealand, underlined by the almost 300,000 children estimated to be living in poverty in New Zealand, nor that this hardship has been exacerbated by rising rental property prices. Housing uncertainty has created additional inequality for children, including discontinuity in their education. Who is responsible for this worsening inequality? Privileged neoliberal discourse tends to point to deficits in the poor--that they are lazy and therefore have caused their own poverty, or more bizarrely that they are not poor after all, as suggested in a series of overtly racist Al Nisbet cartoons, published in several newspapers. The discussion over addressing poverty has been muddied by extended arguments over the definition of poverty, which have allowed the government to avoid setting any targets for reducing poverty. While there is a neoliberal tendency to dismiss the problem of poverty with a deserving and undeserving poor argument, no such case can be made for another, clear-cut example of the effect of residential property prices in the neoliberal era.
We now have a generation that will not own property unless they are fortunate enough to have the oligarchic support of property-owning parents. Due to exorbitant rent and house prices in Auckland, the city is rated as one of the world's least affordable cities. At the same time, house prices are continually rising, meaning the deposit required for a mortgage also rises. Under these circumstances, for those renting, saving a deposit becomes effectively impossible. No amount of 'hard work' or any other neoliberal mantra can change this situation. The younger current generation, and those that follow are being excluded from the Kiwi dream wholesale because another generation has been permitted under neoliberal reforms to treat housing as a simple investment commodity. The consequences of treating housing no differently than, say, collectibles such as antiques has been given little consideration in government policy.
Ultimately, neoliberalism does not do what it says it does. Neoliberalism purportedly encourages people to be productive members of society, and rewards them for their efforts. If we set aside the problematic concept of what is considered productive and worthy of reward in a system built around economic growth, neoliberalism claims to be meritocratic. What we have seen in the first decades of neoliberalism is precisely the opposite of a meritocracy. It no longer matters how hard young people work, they will be saddled with increasing debt, rapidly rising rents, an expectation to pay the pensions of the older generation while having to save to fund their own retirement, and have almost no prospect for the type of housing security that was previously effectively assumed as a right.
In a functioning meritocracy it should not matter much which generation a person was born in, they'd have access to similar opportunities. Given that we all owe an enormous part of our welfare to the past through the technological advances that have been built upon over time, each generation should be better off on average than the last. This progression will not happen for millenials and future generations under the current system because neoliberalism has created a situation where the privileged members of one generation have been able to not only take the advantages inherited from the past, but are borrowing from the future, quite literally from their own children. To point this out is not to place blame on the individuals who have taken advantage of the opportunities the system has given them, but instead to recognise that the system itself is faulty. The system is deeply flawed and simple tinkering will not restore fairness to it. If we can recognise this, and fail to act upon it, we do become responsible for what happens.
What is to be done?
If we agree that neoliberalism does not do what it claims it does, or more simply does not meet our needs, then it is time to reform the system. We need to transition from the current neoliberal system to a system in which, among other things, secure housing is recognised for what it is: an essential component of wellbeing and security, and a fundamental human right. Clearly housing is a symptom of much wider problems under the current system, which needs more radical reform than changes to housing regulations. Tacking on regulations to amend the neoliberal model simply does not go far enough to address the wide-ranging issues that market-led capitalism causes. The model itself is based on exploitation, and cannot be adequately constrained to alter this foundation.
Transitioning into a new system takes time. Specific policies can target housing in the interim before a new system emerges. The aim of such policies should be to reverse some of the changes that have occurred in the neoliberal era. Eventually, housing simply should not be open to the type of speculative investment in which profit is derived by inflating prices at the exclusion of first home buyers, or renters. Some regulatory avenues exist that could help us to transition in that direction: having different borrowing thresholds for home buyers and investors, where investors must provide substantially larger deposits than those buying a home to live in; introducing a capitals gains tax, or more generally a wealth tax; restricting or banning foreign ownership of residential property; encouraging cooperative banks that support community development over financial returns to investment; and, more affordable housing needs to be constructed as a priority.
We also need to change what are considered 'normal' rental terms in New Zealand. Conditions in rental contracts are oppressive: short, fixed-term agreements are standard; tenants are subject to regular inspections (up to every three months is standard), termination periods for tenancies are some of the shortest in the world, and are subject to no conditions; and tenants have no rights to modify the property in any way without permission--to the point of not being able to hang art on the walls without permission. In many countries with histories of long-term renting--a situation that we are normalising under neoliberalism--such conditions would not be accepted.
But more than any of these specific actions to address housing, we need to begin a dialogue in New Zealand. We need to ask: what is the world that we want to live in? What is valued in that world? What sort of a system would support those values? How does it differ from the one we currently have? There is growing awareness in Western capitalist democracies that we have the power to build a better system. We need to start thinking about what that looks like for us.
Bibliography/additional reading
Jane Kelsey (1997). The New Zealand Experiment.
A seminal work on the neoliberal reforms of the 1980s, and their impact on New Zealand.
Jane Kelsey (2015). The FIRE Economy.
An equally seminal work following up two decades on from The New Zealand Experiment. Kelsey details the transition into an economy based on finance, insurance, and real estate, and the huge risks borne by all of us to perpetuate capitalism under this model.
Andrew Dean (2015). Ruth, Roger and Me.
A concise account of the effects of neoliberalism in New Zealand by a scholar raised in the shadow of the 'mother of all budgets'.
BWB texts series.
All three of the above books are published by Bridget Williams Books, a crucial New Zealand publisher of political texts. BWB publishes a series of texts from a range of authors that cost $5 in e-book format.
The Next System Project (website)
An American project that is seeking models for post-capitalist, sustainable economics. Most importantly, the NSP publishes a valuable series in which models are proposed for consideration, among a rich collection of other writing and success stories.
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