Housing affordability in New Zealand and in many other places around the world is getting worse.
This exposes difficult choices. If the value of New Zealand’s housing continues to rise, if there is no price correction, this will widen the socio-economic divide.
The property owners, the landed gentry will benefit and those without property wealth will suffer.
Long term, refusing to acknowledge this widening socio-economic divide means the chances of some sort of radical revolutionary response rises.
Unlikely in this modern day, to be guillotine wielding revolutionaries of the Parisian type – more likely to be something like the anti-establishment outburst of the Brexit or Trump variety.
Yet if the government decides to act in a way that leads to a downward correction in house prices, this will create a public controversy around issues of fear and financial turmoil.
This dilemma is at the heart of why successive governments in New Zealand have failed to implement effective housing market reforms.
Further discussion of this house value graph by ANZ economist – Sharon Zollner is here.
The strategic policy choice of government can be described as -manage the controversy over housing affordability now, so that moderate reforms can be implemented, versus ignore the problem and potentially face a more radical revolutionary response in the future.
Some people have pertinently asked if there are examples of somewhere implementing reforms to make housing more affordable? There is quite a bit of evidence from a large number of cities that the decisions made with respect to restricting new house building does affect affordability. What is less frequently seen are cities which reverse restrictive decisions, going from a highly to lightly restrictive building environment, which then resulted in an improvement in housing affordability. Perhaps the only example is Tokyo, which removed building restrictions following the 1980s property boom and now house prices in Tokyo, a city ten times the size of Auckland, has house price to income ratios half of what Auckland has.
Michael Reddell former Reserve Bank economist who has the blog-site Croaking Cassandra has discussed Japanese housing affordability and thinks it is perhaps an example of successful housing supply reform. But in general Michael believes culturally and politically New Zealand will find housing affordability supply side reforms difficult to undertake and believes demand side reforms of reducing immigration will more likely find public favour. So if a government does choose to act strategically on housing affordability its options are to address supply or demand or both.
President Obama has chosen to address supply restrictions by releasing a Housing Development Toolkit, advising States and local jurisdictions on how to best manage urban planning to achieve affordable housing. Some US cities are very restrictive, so these reforms may cause a measurable downward price correction, but it is too early to tell. There are both supporters and detractors for the President’s approach, which if followed to its logical conclusion by going from advice to a command would remove some aspects of planning autonomy from local government control.
Given there are few examples of successful supply-side housing reforms, I have looked for historical examples of downward price corrections, of other necessities, due to government reform and found one which quite closely fits our situation — the 19th century British campaign for affordable food.
In 1815 the soldiers and sailors won the war against Napoleon but the government handed the victory to the landlords. They had profited from the high price of grain during the war blockade, and so the government passed the Corn Law to forbid the import of wheat until it reached 80 shilling a bushel. This was a de facto ban; it meant that the aristocrats could continue to benefit from high prices and the high rents that they supported. It was passed by the Commons and Lords with the building surrounded by bayonets. The poor of London rioted because they knew that, having had 20 years of high food prices and poverty, the end of the war was not going to make their life easier.
So restrictions on the importation of grain in 19th Century Britain led to increases in food prices, in particular for bread –a daily staple.
A painting of the Peterloo Massacre by Richard Carlile
There were not just riots outside of the Houses of Parliament in 1815, the Corn Law contributed to the Peterloo Massacre in 1819. This was where the British Calvary charged a crowd of 60,000 to 80,000 people who had gathered in St Peter’s Field outside of Manchester, demanding reform. The Corn Law had contributed to poor economic conditions – unemployment, famine and hardship. The crowd demanded widespread reform –from greater political representation to the immediate repeal of the hated Corn Law.
These initial efforts of reform were crushed by the conservative governing authorities, the non-conformist radical leaders were imprisoned, newspapers like the Manchester Observer were closed down to be replaced by the less radical Manchester Guardian, later to become the UK Guardian.
But gradually reform was allowed to occur in Britain. In particular, the 1832 Reform Act was an important step forward, where the landed gentry lost their rotten borough MPs and faced a greater number of middle and working class constituents in the remaining electorates. Although the radicals did not achieve their full demands of -one person, one vote -a reforming process was started which meant this was inevitably going to be achieved by future generations.
The next step of reform was to repeal the Corn Law. This was achieved by an unusual alignment of two groups.
The first group -the radical socialists who represented the working class wanted cheaper food to alleviate poverty because it would help avoid famine, starvation, malnutrition and raise disposable incomes which would give working class families more options and more strength, which would give them more freedom in the future.
The working class understood this bigger picture and articulated this in their union meetings.
In 1833, Trade Unions in Sheffield organised an anti-Corn-Law petition and in January 1839, Sheffield’s middle classes re-established the Anti-Corn-Law Association… In November the Trade Unions agreed to support the anti-Corn-Law campaign. At the November meeting, Harrison of the edge tools trade said; “If the Corn Laws were abolished it would give the working man greater strength to resist other evils… Considering these things … they were of the opinion that if they could overcome the Corn Laws first, other evils would fall before the persevering stroke of those who struggled for liberty.”
The second group was the growing city based middle-class libertarians, in particular the owners of the new industrial factories were influential as they organised the Anti Corn Law League. They wanted the Corn Law repealed, not because they wanted their workers to benefit, but because it would help their businesses. They could pay their workers less but the workers would still effectively get an increase in disposable income because of the reduction in food costs. Workers could then afford to buy more of what they were producing. Businesses gained twice -their labour costs would fall but their revenues would rise.
The following video explains the historical dynamics of reform versus revolution and how different social groups came to align.
What are the lessons from the campaign for affordable food?
- Achieving a strategic alignment of a broad cross-section of social groups is important.
- Acknowledging that moderate incremental reform can prevent future radical revolutions.
- If traditional media does not report on your campaign create new media. The Economist newspaper was founded by the British businessman and banker James Wilson in 1843, to advance the repeal of the Corn Law.
- Simple clear statements/images with a strong moral message are effective.
Anti-Corn Law medal -Inscribed “Corn Monopoly: A Nations Curse” (at top) and “Thou Hast Withholden Bread from the Hungry” (at below). Selling for £255 on ebay.
Anti-Corn Law pamphlet
Opposition to affordable food reform was divided. There was great dissent within the Peel-led Conservative Tory government of the time. Sir Robert Peel being in favour of reform, while much of the party, especially from the shires being against. Some even forming an Anti-League which at the time got much publicity from Tory leaning newspapers.
In 1846 the Corn Laws were repealed –probably triggered by the moral horror of the Potato Famine in Ireland. Although for Ireland -reform was too little too late -one million people died and a further million migrated -creating such bitterness, independence from the UK was inevitable. The UK mainland was able to avoid the 1848 continental revolutions, which historians attribute to the reforms we have discussed reducing social tensions.
For the UK Conservative party from 1846 onwards, there was a split between the Peelites who were economic liberals and the more protectionist, landed gentry part of the party which came to be represented by Benjamin Disraeli with his populist one-nation conservative politics.
There are some parallels and differences between New Zealand’s current efforts to fix the housing crisis and the 19th century British affordable food history.
- The Corn Law was an intractable problem in Britain where very little progress was made for 30 years until the 1840s. Housing affordability has been getting worse for 25 years in New Zealand, house prices have risen faster than incomes and the home ownership rate peaked in 1990. Successive governments in New Zealand have not been able to implement effective reforms.
- Progress began to be made when the public started to see the problem as moral issue –that the Corn Law was in effect a tax on the poor’s daily bread with all the consequent problems of malnutrition, starvation, famine… In New Zealand the housing crisis became ‘real’ for many by the publicity about increasing homelessness. In New Zealand 41,000 individuals and families move between temporary and insecure accommodation, such as, bunking down with extended family members and living in garages, garden sheds, cars and caravan parks. There is an even greater number of families living in poor quality insecure private rental tenancies which on average only give a home for two years or less, leading to problems of transient communities. These housing conditions have consequent ramifications for childhood poverty, education and health. Note the fact New Zealand had a well-attended public Homeless Inquiry is evidence many people are beginning to see the moral dimension of the housing crisis -see my Homeless Inquiry submission.
- Both now, with respect to housing, and in the past with respect to food, there is a ‘landed gentry’ group which benefits from the status quo and which puts obstacles and conditions on reform -like no reform which will lower house prices.
- A nationwide coordinated campaign on the benefits of affordable food reform was effective. The Anti Corn Law League was one of the first coordinated British democratic campaigns to be successful -it extended the lessons from the succesful anti-slavery campaign.
- New Zealand’s modern day conservative party –The National party is probably more split on the housing affordability issue than they publicly admit. The liberal side of the party want to reform infrastructure funding and restrictive planning rules, while the old fashion ‘landed gentry’ side are worried about the effect this will have on their ‘leafy suburb’ constituents. Because these interests do not align the National party has not been able to implement effective affordable housing reform to address the housing crisis.
For New Zealand to become a fairer society, we should learn the lessons from earlier struggles for economic, social and political justice. If these lessons were applied to New Zealand’s housing crisis, in my opinion affordable housing could be easily solved.
Brendon Harre is a reader and commenter on housing issues in a number of forums. It was first published here.