NZ Initiative's Eric Crampton says the country has much work to do in restoring housing affordability, but the broad social trends are positive

By Eric Crampton*

Last week, the Salvation Army released its State of the Nation Report. And, contrary to the usual story, the Salvation Army’s report generally paints a picture of improving outcomes. Surely if inequality has been rising, as campaigners tell us, and if inequality ruins the country, as campaigners tell us, then New Zealand must be getting worse.

But the statistics generally tell a different story.

Crime rates are down. Teen pregnancy is down. Drinking rates, overall, are down. Some measures of hazardous drinking have ticked back up to 2007 levels, but reported harms from drinking are down. Spending on gambling is down. Labour force participation is up. Child poverty, as measured by material hardship, is well down, although the number of children in severe poverty is only slightly lower than 2010.

And if we extend the data series farther back, things look even better. The Salvation Army’s report shows that 17% of children in 2014 lived in households earning less than a poverty line fixed in 1998, and that that figure is the same as it was in 2010. But 28% of children were below that line in 1998; unfortunately, the Salvation Army’s report only covers the most recent years. 

The New Zealand Initiative’s forthcoming report, Poorly Understood: The State of Poverty in New Zealand, to be released on February 25, reaches similar conclusions. Excessive focus on the large number of children in households earning less than some fraction of median earnings diverts attention from the 80,000 or so in severe material deprivation – not all of whom will show up in relative income poverty figures.

The Salvation Army report also rightly notes the importance of housing costs in materially contributing to deprivation in New Zealand. Inequality and poverty figures taken after housing costs show worse outcomes than those taken before housing costs.

The country loses out every time urban planning restrictions price families out of Auckland and force them to move to places that are less productive but that have affordable housing. And every time several households have to bunk together in the same house to afford the rent, there are consequences for children’s health.

Housing and zoning decisions like those around Auckland’s Unitary Plan are a substantial part of New Zealand’s poverty problem. The more that local town hall meetings are able to block new developments and wish development on neighbours instead, the less chance we have of building more houses to fix the problem. If you planned on protesting new developments near you, think hard about the consequences of your actions.

Generally improving social statistics despite flat income inequality figures may baffle inequality campaigners. Researchers Wilkinson and Pickett suggested that inequality leads to poor social outcomes, and their work has had no small influence in New Zealand. How can the world be improving if there is inequality?

The best and simplest answer is that Wilkinson and Pickett’s empirical work was wrong. And the critiques of their work have not come only from the right. Andrew Leigh, Australian Labor MP and economist, argued that negative effects of inequality on social outcomes like those pointed to by Wilkinson and Pickett generally do not bear up under scrutiny. It isn’t that Leigh does not care about inequality – his speech on the topic gives the reasons he doesn’t like inequality. Rather, he takes the data seriously and has worked in the area. Empirical work linking inequality to bad social outcomes tends to be fragile: the results fall apart with small changes in how the numbers are run.

The world is far from perfect. In particular, the country has much work to do in restoring housing affordability. But the broad trends are positive.

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*Eric Crampton is head of research at The New Zealand Initiative.