Housing, the market and the welfare state – Philippa Howden-Chapman

We are living in a world that would in many ways be familiar to our Victorian forebears. Houses for sale are built by property developers catering to those towards the top end of the market, while essentially unregulated and often poor-quality rental housing is being provided to increasing numbers of people by private landlords, whose behaviour is understandably largely shaped by the market. But, unlike nineteenth-century England, New Zealand does not have the large charitable trusts that built many housing estates. We do still have the Salvation Army, a Christian mission, with a quasi-military command structure, that was set up in the East End of London in 1865 to address appalling living conditions.

New Zealand’s liberal welfare state was established noticeably earlier than in the rest of the OECD and included the indigenous population ostensibly on equal terms, but it has never been at the generous end of the spectrum compared with those in the Nordic social democratic welfare states.1 Here, the welfare state has partnered with the market in a mixed economy: that is, the state is seen as having an undeniably important role alongside and collaborating closely with the business sector. This model was developed fully after the Second World War on the foundation of wage earners’ (and specifically male breadwinners’) full employment and the expectation that minimum wages and state-subsidised mortgages would be sufficient for a family to afford to buy a house and raise children.2 For those in retirement, it was expected that mortgage-free houses would help to reduce pressure on public finances.

In the 1930s, 40s and 50s, the state’s investment in helping citizens into home ownership, as well as developing other national infrastructure, was made for the wider good of society. For example, investment in renewable energy to generate electricity was designed to heat and light homes affordably, as much as to power manufacturing industries and milking sheds. New Zealand’s National Superannuation scheme (which mirrored the Family Benefit in being universal and available to all) was considered fair, and affordable, because there was a broad political consensus about the need for wage restraint and a progressive income tax.3

Family trusts that enabled wealth to be stored away from the scrutiny of Inland Revenue were not widespread. The inward flow of migration was predominantly of young working-age people and was usually one-way, so there was a sense of fairness and reciprocity behind the support for the more vulnerable members of the population – children and older people. It was never envisaged that many or indeed most children would be brought up in private rental housing, where their parents had no security of tenure. Nor was it imagined that HNZ’s mission would be changed to simply managing state houses as assets and tenancies, rather than providing wrap-around social services as well. Nor was it imagined that the tenant applications for state and community housing would be transferred to the Ministry of Social Development (MSD) and follow the health sector ‘trick’ whereby a considerable proportion of previously eligible households dropped off the waiting list thanks to a much greater number of categorical exclusions to its ‘client-base’.

In language George Orwell would recognise, HNZ’s website now states: ‘We provide affordable houses for those in greatest need, for as long as they are in need.’4 Nobody has institutional responsibility for contacting or measuring the still pressing housing needs of those ‘Cs’ and ‘Ds’ who are not considered in greatest need and are dropped off the HNZ lists or, more likely, fail to make it on to the list.

Home ownership is widely agreed to provide households with a valuable financial buffer, offering resilience in the face of economic ups and downs. Some housing commentators see formerly high home ownership, in weakly developed welfare states such as Australia and New Zealand where housing is not in practice considered a right of every citizen, as representing the ‘really big trade-off’ with state welfare provisions.5 This raises the pivotal question: what happens to the broader welfare of the population when there is a declining proportion of people owning their own homes, or renting state or community-owned housing?

What are the rules of the game?

To understand what is going on in housing and where the policy levers are, we need to step back and consider how society is organised. All social and economic institutions are created by society, but the critical incentives are created through political power, shaping the formal and informal rules of the game.6 Formal rules, which have an impact on housing and where it is built, are legislation like the Building Amendment Act 2013 and the Resource Management Amendment Act 2013; regulations like the Housing Improvement Regulations 1947 and the Building Regulations 1992; and legal covenants. Political pronouncements can also create official rules. For example, the current government has prohibited state housing in Auckland’s Hobsonville Point, a master-planned community developed by the state-owned Hobsonville Land Company as a mixed-housing area. Building state housing there would be ‘economic vandalism’, according to Prime Minister John Key.7

Informal rules are social norms or conventions. Examples include new couples forming their own households in a separate house or apartment away from their parents or former flatmates, or couples forming two separate households after divorce. Similarly, families might feel obliged to take in family members who cannot afford a separate house on the understanding that it will be for a limited period, even if all parties would prefer not to be crowded and to have more space and privacy.8

Without understanding both the formal and informal rules and how they operate to frame the political discourse, it is difficult to read the operation of the housing market. For example, one of society’s most potent sets of rules affecting housing is the tax system: the way tax is structured tells us a great deal about what the government values. Inequitably, home owners and landlords get a better deal than renters in the tax system. The wealth in family homes can be stored in family trusts, or it can be transferred to children and grandchildren, without any estate duties being charged on the death of the parent. Home owners do not pay tax on so-called imputed rental income, the stream of housing services that a house provides (contrast this with the tax paid on the stream of interest income from money invested in a bank). Landlords can write off losses on net rental income against other income (a tax shelter) and use existing properties as collateral on new property purchases.

In a society with growing wealth and income inequality, as the wealthier become wealthier thanks in part to an inequitable tax system and their access to special provisions such as trusts, they use public services less, and are therefore increasingly reluctant to support their use by others.9 Likewise, with changes in the political culture, the financially secure become increasingly reluctant to support public services such as housing assistance for those who are on lower incomes.10 Minister of Finance Bill English recently called state housing ‘slum housing’, a predictable example of the way some politicians and special interest groups will disparage and undermine the value and attractiveness of particular state assets prior to disposing of them. He was also reported as saying that it was not hard to imagine other public services such as railways, postal services and public broadcasting becoming ‘relics from a bygone era’.11

In an environment where state housing is disparaged by the wealthy and those in political power, it is possible not only that the needs of the poor and vulnerable can be dismissed, but also that the possible needs of the majority of the population may be overlooked and diminished.

The age of housing insecurity

There has been little government recognition that policies about home ownership interact with policies about rental housing, including state housing. With the introduction in 2014 of renewable state housing tenancies, which require regular reassessments of all tenants’ right to stay on in their dwellings, the housing insecurity already experienced by people in private rentals, camping grounds and boarding houses has been extended to state tenants.12 This is the most recent chapter in the gradual tightening of the inclusion criteria for HNZ tenants over a decade. Despite HNZ tenants being among the poorest and most socially disadvantaged households in New Zealand, state housing is now essentially part of an integrated, insecure public–private rental market overseen by MSD.13

Making state housing tenure more precarious is a psychological step towards the sale of state housing. Indeed, the selling of state and council assets, such as housing, has a long political and policy history, both in New Zealand and the UK.14 But the scale and rapidity of such sales oscillates from being driven by operational management to being driven by ideology. In the UK, it was under the Thatcher government’s ‘right-to-buy policy’ in the 1980s that the number of council flats sold exceeded the number of flats that were being built. This so-called ‘popular capitalism’ came to mean the sale of more than one million publicly owned council houses to sitting tenants, with discounts up to 70 per cent. This was politically popular with the tenants and did not directly raise concerns with the middle classes, who were already more likely to own their homes.15 However, former council tenants on lower incomes, who were seduced by the discount sale prices into embracing ownership of their former council houses, were subsequently affected by inflation partially fuelled by the sales, and they became more vulnerable to repossession and mortgagee sales throughout the 1980s and the 1991 recession. As the existing stock and building of council properties declined, homelessness also became acute.16

There are lessons here for New Zealand. The irony of paring back assistance to HNZ tenants through the sale of some HNZ dwellings and the deliberate slimming of waiting lists is that many low-income households must rely on low-quality, private-sector tenancies, which are subsidised by the government through the Accommodation Supplement.17 The Accommodation Supplement also goes to some low-income home buyers in the form of a mortgage supplement. The number of Accommodation Supplements paid fell 8 per cent over the four years to 2008, but expenditure was up 27 per cent.18

Although the financial sums involved are small compared with the Accommodation Supplement, the government’s parsimonious attitude towards those in the rental sector is also exhibited in the handling of tenants’ bond money. For example, the Crown, acting through its agent the Ministry of Business, Innovation and Employment (MBIE), has a perverse incentive not to actively try to return tenants’ bonds, and this effectively amounts to a tax on tenants. The Christchurch Tenants Protection Association has had an ongoing campaign for the return of $17 million unclaimed or uncollected tenancy bonds that accumulated in the five years prior to 2014. Under the Residential Tenancies Act 1986, uncollected tenancy bonds revert to the Crown after six years.19 There have been calls for this money to be used for funding tenants’ associations to support and educate tenants about their rights and responsibilities.20

The growing policy gap

The link between the decline in home ownership among younger people and the rise in young and middle-aged people renting appears to be below the political radar. The government’s failure to recognise that the quality and security of existing rental housing, as well as the supply of new housing, requires more comprehensive action represents a major policy gap. These are major policy omissions that have also been noted in the UK.21

Moreover, there is little regulation of any aspect of the private rental market. In contrast, private renting in many other developed countries, such as Germany, offers long-term security of tenure and rent regulation. This broadens private renting’s appeal to many types of households and age groups by reducing uncertainty about future housing costs.22

In New Zealand, most landlords, like most residential building firms, are small scale, usually an individual or a couple who have inherited a house from parents, or are renting out a house that did not sell immediately.23 There have been no moves to follow British, German and US policies designed to create more corporate ownership of rental housing by encouraging equity funding from the mainstream financial institutions, such as pension funds.24 Companies and institutional investors are usually able to reduce risk through diversifying their assets, are more likely to have a professional maintenance schedule and can benefit from economies of scale.

The regulation of most private rental markets in Europe, where security of tenure is similar to that in social housing, has led to the development of what has been called a ‘unitary market’, which means that there is little difference in quality between social housing and private rental housing.25 In neoliberal English-speaking countries, regulation is considered inefficient and too costly, whereas in Austria, Germany and Switzerland regulations are thought of as stabilisers, reducing risks and transaction costs for both landlords and tenants. European countries also realise that a unitary quality market is not only equitable, but it also facilitates the movement of the workforce for employment opportunities.

In New Zealand’s deregulated housing market, both landlords and tenants rely on the possibilities for ‘exit’ only, the common understanding being ‘If you don’t like it, leave and find another flat.’26 The Tenancy Tribunal was established to hear complaints, and let landlords and tenants give ‘voice’ to their unresolved grievances. These are almost exclusively brought by landlords, and can determine whether rent payments may be withheld or tenancies prematurely terminated.27 But the Tenancy Tribunal does not set quality standards. Flats that are of such poor quality that the Tribunal rules in favour of the tenant and allows them to break the tenancy can nevertheless be rented out to a new tenant the next day.28 Thus the Tribunal, though staffed by well-meaning adjudicators, is a toothless kitten designed to do very little for the tenant and even less to encourage landlords to improve their offerings. The Residential Tenancy Act (RTA) 2010 included boarding houses. The RTA Amendment Bill 2015 for the first time introduces rental housing standards and has passed its first reading. The Bill introduces a mandatory requirement for all landlords, if insulation is absent or faulty, to install current 2008 insulation (otherwise the 1978 levels will suffice), as well as smoke alarms.  While the Bill protects tenants’ rights to appeal to the Tribunal, in all but the most serious cases, it is the responsibility of the tenant to complain, not the Ministry of Business, Innovation and Employment to enforce.

While the current formal tenancy rules favour establishment organisations, even the most diffuse interests in other developed countries have managed to mobilise and coordinate to develop a coherent narrative that enables them to pursue common interests, despite the absence of formal legal and institutional supports.29 Traditionally, the voice of renters, who generally are more transient consumers of housing services, has been muted. However, as more middle-class couples have become renters, sometimes by choice, renters with very different interests have begun to speak out.30 They are increasingly being seen to articulate important and deeply held points of view – a necessity for political legitimacy – about fairness and protection in relation to the quality and security of rental housing. The activists have gained increasing social standing, public recognition and media influence.

Accordingly, those renting have become more outspoken in demanding greater security of tenure and other rights. A renters’ rights group called Renters United formed in Wellington in 2015, and has received considerable media coverage. Their manifesto began with the expectation that all tenants should be able to live in safe and healthy homes and pay affordable rent. All renters should be able to find and rent a home free from discrimination, intimidation and harassment, and have a respectful and responsive relationship with their landlord. They believe that the rental agreement should grant them long-term security and stability and have good cooking, laundry and bathroom facilities. Tenants should be able to make their home their own through reasonable changes.31

Diffuse interests articulated by heterogeneous groups such as renters are theoretically more powerful if they appeal to at least one other major interest group such as a political party, business or a social movement.32 Interestingly, a number of councils and some landlords had previously supported a pre-test of a comprehensive rental housing warrant of fitness (RHWoF) as a possible partial solution to persistent rental housing problems.33 The Property Investors Federation has publicly supported activists and academics in calling for a RHWoF that includes both insulation and heating. It is the government, whose policy excludes the requirement that landlords should provide essential household items such as heating, that is out of step. This raises the possibility that sooner or later a more comprehensive RHWoF is more likely to be implemented than not.

Who is the market working for?

What’s happening out there in the housing market looks very different if you are a young person trying to get a flat, or a sole mother with two children who’s trying to find anywhere to live, or Māori or Pacific families who regularly report being discriminated against in the housing market.34 It looks different if you’re a couple trying to buy their first home and planning to have children. It looks different if you are a banker who’s approving another mortgage to a landlord on the basis of the equity they have in their currently owned properties. It looks different if you’re a home owner in an area with a housing bubble and enjoying record untaxed capital gains.

The government is the key player in creating the formal rules that regulate the housing market. Most people are not in a position to shape the market, and those on low incomes, with debts but no wealth, are faced with very limited choices as to where they can live. 

This is an extract (including minor edits) from Home Truths: Confronting New Zealand’s Housing Crisis by Philippa Howden-Chapman (BWB Texts, published November 2015).


1 G. Esping-Andersen, Social Foundations of Postindustrial Economies, Oxford University Press, Oxford, 1999. (Back)

2 C. Deeming, ‘The Working Class and Welfare: Frances G. Castles on the Policy Development of the Welfare State in Australia and New Zealand Thirty Years On’, Social Policy and Administration, 47, 6 (2013), pp.668–91. (Back)

3 D. Thomson, Selfish Generations? The Ageing of New Zealand’s Welfare State, Bridget Williams Books, Wellington, 1991. (Back)

4 Housing New Zealand Corporation, ‘Home’, www.hnzc.co.nz[http://perma.cc/8T7C-5E5W]. (Back)

5 J. Kemeny, ‘“The Really Big Trade-Off” between Home Ownership and Welfare: Castles’ Evaluation of the 1980 Thesis, and a Reformulation 25 Years On’, Housing, Theory and Society, 22, 2 (2005), pp.59–75. (Back)

6 D. Acemoglu and J. A. Robinson, Why Nations Fail: The Origins of Power, Prosperity and Poverty, Profile Books, London, 2013; D. C. North, Institutions, Institutional Change and Economic Performance, Cambridge University Press, New York, 1990. (Back)

7 K. List, ‘Scoop IV Transcript: John Key Talks Tax Cuts’, 16 June 2006, www.scoop.co.nz/stories/HL0606/S00216.htm[http://perma.cc/Z896-HWCK]. (Back)

8 P. Howden-Chapman et al., ‘Open Houses and Closed Rooms: Tokelau Housing in New Zealand’, Health Education and Behavior, 27, 3 (2000), pp.351–62. (Back)

9 R. E. Goodin et al., ‘Not Only the Poor: The Middle Classes and the Welfare State’, Contemporary Sociology, 18, 2 (1989), p.223. (Back)

10 Ibid. (Back)

11 Radio New Zealand, ‘No Plans to Sell SOE “Relics” – English’, 23 July 2015, www.radionz.co.nz/news/political/279498/no-plans-to-sell-soe-’relics’-english[http://perma.cc/8PVY-RACA]. (Back)

12 C. Severinsen and P. Howden-Chapman, ‘The Problem and Politics of Temporary Housing’, Housing, Theory and Society, 31, 2 (2013), pp.125–47. (Back)

13 M. Baker, J. Zhang and P. Howden-Chapman, ‘The Health Effects of Social Housing: The Social Housing Outcomes Worth Study’, in S. Bierre, P. Howden-Chapman and L. Early (eds), Homes People Can Afford: How to Improve Housing in New Zealand, Steele Roberts, Wellington, 2013, pp.33–47. (Back)

14 R. Forrest and A. Murie, Selling the Welfare State: The Privatisation of Public Housing, Routledge Revivals, Oxon, 2011 (first published 1988). (Back)

15 Ibid. (Back)

16 D. Marsh and R. A. W. Rhodes, ‘Implementing Thatcherism: Policy Change in the 1980s’, Parliamentary Affairs, 45, 1 (1992), pp.33–50. (Back)

17 Bill English, speech on housing affordability, New Zealand Parliament, Wellington, 15 September 2015. (Back)

18 MSD, ‘Accommodation Supplement’, in The Statistical Report 2008, Wellington, 2009. (Back)

19 A. Stewart, ‘Bonds Worth Millions Forfeited to Crown’, Dominion Post, 11 July 2015, p.A8. (Back)

20 E. Chisholm, S. Bierre and P. Howden-Chapman, ‘$1m-plus in Unclaimed Bonds’, Dominion Post, 29 October 2013, www.stuff.co.nz/dominion-post/business/residential-property/9335953/1m-plus-in-unclaimed-bonds[http://perma.cc/BY89-H33W]. (Back)

21 H. Fearn, ‘If Housing Were Seen as Infrastructure There Would Be A Lot More of It: The Government’s Refusal to Classify Affordable Housing as Infrastructure Is Deterring Investment’, The Guardian Housing Network Blog, 31 January 2014, www.theguardian.com/housing-network/editors-blog/2014/jan/31/affordable-housing-infrastructure-investment[http://perma.cc/PA44-6C9N]; K. Barker, Housing: Where’s the Plan?, London Publishing Partnership, Norwich, 2014. (Back)

22 T. Crook and P. A. Kemp (eds), Private Rental Housing: Comparative Perspectives, Edward Elgar, Cheltenham, 2014. (Back)

23 S. Bierre, P. Howden-Chapman and L. Signal, ‘“Ma and Pa” Landlords and the “Risky” Tenant: Discourses in the New Zealand Private Rental Sector’, Housing Studies, 25, 1 (2010), pp.21–38; K. Saville-Smith and R. Fraser, National Landlords Survey: Preliminary Analysis of the Data, Centre for Research, Evaluation and Social Assessment, Wellington, 2004. (Back)

24 Crook and Kemp (eds), Private Rental Housing. (Back)

25 J. Kemeny, From Public Housing to the Social Market: Rental Policy Strategy in Comparative Perspective, Routledge, London, 1995. (Back)

26 E. Chisholm, ‘The Home Front: Collective Action to Improve New Zealand Rental Housing’, Department of Public Health, University of Otago, Wellington, submitted. (Back)

27 A. O. Hirschman, Exit, Voice and Loyalty: Responses to Decline in Firms, Organisations and States, Harvard University Press, Cambridge, MA, 1970. (Back)

28 S. Bierre, M. Bennett and P. Howden-Chapman, ‘Decent Expectations? The Use and Interpretation of Housing Standards in Tenancy Tribunals in New Zealand’, New Zealand Universities Law Review, 26, 2 (2014), pp.153–85. (Back)

29 G. Trumbull, Strength in Numbers: The Political Power of Weak Interests, Harvard University Press, Cambridge, MA, 2012. (Back)

30 S. Eaqub and S. Eaqub, Generation Rent: Rethinking New Zealand’s Priorities, Bridget Williams Books, Wellington, 2015. (Back)

31 Renters United, 2015, www.rentersunited.org.nz[http://perma.cc/Z85K-MVEQ]. (Back)

32 Trumbull, Strength in Numbers. (Back)

33 J. Bennett et al., ‘Towards an Agreed Quality Standard for Rental Housing: Field Testing of a New Zealand Housing WOF Tool’, Australian and New Zealand Journal of Public Health (March 2016). (Back)

34 R. Harris et al., ‘The Pervasive Effects of Racism: Experiences of Racial Discrimination in New Zealand Over Time and Associations with Multiple Health Domains’, Social Science & Medicine, 74, 3 (2012), pp.408–15. (Back)