Origin of the Housing Crisis In NZ/Aotearoa

This article surveys the origins of the current housing crisis in NZ/Aotearoa, viewing the neo-liberal turn of the 1980s'-1990s' as a critical juncture.

Submitted by LAMA on May 10, 2018

By Kaye Richards

Aotearoa/New Zealand is in the midst of a housing crisis. In parts of the country, especially Auckland, there is a serious shortfall in housing availability. Rents are high and property speculation is rife. None of this arose in a vacuum. Things didn’t get into the present condition overnight or by accident. This article explores a point of historical change during which housing policy shifted in New Zealand. It looks at the actions of the National government in 1991 in the context of the neo-liberal ideology that was heavily influencing the government at the time and their consequences in terms of poverty levels and inequalities in the housing market in the 1990’s and beyond. I begin with a brief overview of the history of state housing policies and intervention in the housing market. What follows are examples of how successive policies effected people on the receiving end of them.

The 1980’s saw a major change in the consensus among the ruling class in New Zealand. I will put the reasons for this in an international context and briefly note the role of the fourth Labour Government in implementing the changes. The next part concentrates on the role of the 1991 National government in exacerbating the changes begun by Labour, through its change in housing policy. I conclude with a statement about alternatives to the privatisation based ideology that still holds sway in this country.

Successive New Zealand governments in the 20th century intervened in the housing market. The first state houses were built in 1905 by the Liberal government, after passing the Workers Dwelling Act. The aim of the Act was to provide low-cost housing to city workers to deal with squalid living conditions in working class districts. The schemes were not very successful. From 1912-28 the right –wing Reform government sold off the remaining dwellings and promoted private home ownership. Then in the 1930’s Labour introduced state housing. Many of the houses were actually built by private construction companies such as Fletcher Construction, which made huge profits and became a multi-national as a result of the patronage the state gave it. So-called state housing has therefore never been entirely about the state acting on its own. This serves as a reminder that under capitalism all housing policy is determined by the relative weighting between private and government actors, rather than being truly social or communal in nature.

Since the 1950’s state tenants were able to purchase state rental properties. By the mid 1980’s home ownership was 74% and was 76% by 1991, with state housing consisting of only a small minority of dwellings. The Housing Corporation was established in 1974 and became the main vehicle for state intervention in the housing market. It managed the stock of state housing rental properties and provided mortgage finance for low income households. The Housing Corporation became the largest agent for mortgage lending in Aotearoa until de-regulation by the Labour Government in 1984, when other finance agencies and banks were permitted to compete in the market. By 1990 Housing Corporation held only 16.9% of all housing loans.

The 1980’s ushered in an era of contestation within the ruling class, which saw a move towards much greater privatisation and neo-liberalism. The period from the end of World War II until the early 1980’s was characterised by secure economic growth, stable labour markets and the male bread-winner model. Changes came in the form of a rise in unemployment, slow economic growth, a shift from manufacturing to service industries, technological changes, alterations in family structures and composition, a rise in the number of women in paid employment, changes in migration patterns, an increase in consumer capitalism, the collapse of a bi-polar ordering of the world on the scale of geo-politics and an intensification of globalisation. These changes lead to alterations in social policies in light of what was essentially a fiscal crisis.
The dominant economic ideology became neo-liberalism, with its emphasis on individualism, privacy self-reliance, and responsibility. This was accompanied by the affirmation that the free market is the best mechanism to provide social services. Under this ideology the state gave philosophical support to the market as a provider of social services rather than taking on that role itself or using public funds to help private companies as it had done in the 1930s.

In 1984 the fourth Labour government undertook a programme that de-regulated and restructured the economy. In terms of housing, the policies of the Housing Corporation changed to a more targeted approach. Those defined as in ‘serious need’ became a focus and thus assistance became residual in nature.
The National government that took power in 1990 undertook to push and extend the agenda Labour had started. They transformed the Housing Corporation into a State Owned Enterprise (SOE). This meant that as well as meeting social obligations the SOE was to be run as a business with the goal of generating profits. The system of providing low-income households with income related and therefore cheaper rents was changed. It became a system of charging market rents for these properties and installing an income supplement in the form of a means tested Accommodation Supplement. Thus assistance for housing moved from a direct ‘bricks and mortar’ house to directly providing cash. The working poor and beneficiaries could still rent a state house in theory but would be paying more for it. Further alterations were that prime mortgages held by the Housing Corporation were offered for sale to the public finance sector and subsidised mortgages in which repayments were related to income were also changed to market mortgage rates. In 1990 42% of beneficiaries and 30% of female solo parent households were paying subsidised mortgages.

The rationale behind the foregoing changes was that within the neo-liberal paradigm cheaper subsidised rents for state tenants was deemed ‘unfair’ because they were viewed as a privileged sector receiving extra help. The ideology argued that the rise in market rents would bring equality to all low-income households. They would then all be paying market rents regardless of whether they were in a state house or private rental. However formal equality of treatment does not guarantee equality of outcome. This is because of the unequal conditions of certain sectors of society such as tangata whenua, the disabled, LGBT identifying people, Pasifika, the elderly and solo-mothers. A high proportion of these groups are represented among the poor and face discrimination in the housing market. Further, they represent a high proportion of state tenants, particularly Maori women. Any chance they had of being protected was removed. Many state housing tenants were worse off under the new system as a high proportion of them were state beneficiaries. Their incomes were reduced and then reduced even further by rent increases, causing problems in the affordability of housing for these groups as well as others generally. This attempt at supposedly creating a ‘level playing field’ meant that the special needs of Maori were subsumed into the broader context of low- income housing assistance rather than given priority or specific assistance. This would adversely affect Maori housing circumstances especially in rural areas such as Northland.

The system of subsidised rents was seen as encouraging dependency. People would just stay in their cheaper state house rather than find other accommodation. However, having cheaper rent had actually helped low-income families become more self-reliant as housing costs were not such a large proportion of their income. They could look after themselves when it came to other costs such as food and amenities without seeking state help or charity. Also the subsidised mortgage scheme helped many on low-incomes into home ownership they might otherwise not have achieved. The system of abatement rates for beneficiaries who worked for extra money or who had cash assets created a dis-incentive to try and earn extra money or to save funds. This effected their capacity to buy their own home and had long-term consequences for home ownership and actually helped create dependency.

When it comes to consumer choice for housing, having a low-income and minimal assistance curtails such ‘choice’. You have to take what you can afford. The rhetoric of ‘choice’ assumes having sufficient information to be able to make a rational choice. Housing Corporation became a ‘one-stop-shop’ for state rentals which entailed unequal access to alternative availability. Also ‘choice’ does not take into consideration discrimination in the housing market and the difficulties faced by non-English speakers such as working migrants who may lack resources such as time, money or transport. Further, it does not take into account the substantial cost involved in moving such as bond and rent advance, the cost of moving furniture, having power re-connected and so on, much of which is difficult to fund on a low income.

Under the system of market rents there was concern for efficiency. The policy was to match supplies of housing stock to families. This was in order to avoid the situation of a single person or childless couple for example living in a three or four bedroom house, which amounted to an uneconomic use of resources. The system of market rents meant a three or four bedroom house would attract a larger rent and if the rent became unaffordable the existing tenants would be forced to move. This policy did not take into account the lack of single bedroom properties available in the housing stock so therefore people requiring smaller properties were disadvantaged. There is also the social cost of disrupting existing communities to consider and the displacement of disadvantaged groups. Under the older system tenants had security of tenure, but this was removed since their ongoing tenancy could be construed as ‘inefficient’ by the powers that be. This has a big impact on disadvantaged groups such as the disabled as they no longer had protection from the vagaries of market forces. The rhetoric of ‘choice’ in fact hides a coerced exchange as people are forced to take whatever the market provides.

Much of the early state housing was built on the urban periphery, such as parts of Lower Hutt, Otara and Porirua. However, there was also state housing within areas of private housing and also inner-city state housing in Auckland and Wellington. The first Labour government operated a ‘pepper potting’ policy of scattering the locations of state housing so as to encourage a sense of community rather than ghettoization. The change to market rents resulted in rents for state houses in prime locations such as inner city Wellington becoming very expensive. This had the effect of making such houses unaffordable and then untenanted. The National government then saw them as surplus to requirements and sold them. Whilst houses were being sold off, there were people on waiting lists. From 1992-99 Housing Corporation’s stock of rental properties declined by 16% and there was public criticism of the government because they were making a profit from what was perceived as a public investment. These policies meant that state tenants had less choice about where they rented. They became socially segregated into housing stock located at the bottom of the price range. They were pushed out into the urban periphery. A 1991 report on Maori women’s housing found that they faced discrimination from housing officials and were allocated housing in what were commonly known as the ‘ghetto areas’ of towns and cities.

The combined effects of the 1991 benefit cuts and the change to market rents had a huge impact on low-income households and beneficiaries. 1992-1999 state rents increased 106% compared with 23% in the private rental sector. These groups experienced considerable financial hardship under the more market-led regime. State tenants became some of the more economically and socially marginalised groups in the country in the 1990’s. That decade saw an increase in housing related poverty and an increase in the use of food banks by people who had been hard hit by the changes. Because the changes made housing affordability an issue for low-income households, there was increased need and demand on Accommodation Supplement and Special Needs Benefits. This had the potential to lead to a fiscal blow-out as the costs of the scheme increased. The need to cut government expenditure was one of the justifications for introducing the changes but was having the opposite effects. The poverty caused had detrimental effects on lifestyles and entailed social costs. There were reports of people going without food, having their phone or power cut off or not being able to access medical care. Families were placed under great strain trying to deal with limited financial resources, which had consequences for relationships. Some broke under the strain and others experienced violence in the home.

One of the ways low income groups tried to survive and manage poverty levels was to alter their living arrangements. They did this by having boarders or for people to share accommodation. Alternatively, large families were living in cheaper, smaller houses, in order to increase income and minimise housing costs. This lead to issues of overcrowding and attendant health issues associated with overcrowding.

In conclusion, New Zealand governments have maintained a role in the housing market since the early Twentieth century. The housing policy changes made by the National government in the 90’s altered the mix between the private and state sector and the way they interacted to a greater degree than in the past. The changes were motivated by a neo-liberal paradigm which saw the profit driven market as the primary agent in the process. Housing assistance was reduced to a single issue, that of financial cost. A basic democratic social goal of protecting the vulnerable in society was deliberately ignored. Further, the government was pre-occupied with fiscal savings at the expense of social objectives. Restructuring The Housing Corporation into an SOE meant there would be conflict between meeting social goals of providing help with accommodation for those in need and operating a commercially successful business. The fiscal objective and its underlying ideology won out. However, this was in tune with the mantra of self-sufficiency and was not perceived by its practitioners as a deficiency.

Recently we have again been living governments that see privatisation as the essential way to deal with housing. The state and elements of the private sector have always co-existed and co-operated in the housing market. The historical survey outlined above shows that the current situation has not magically appeared from nowhere. It is true there are shorter term and more immediate triggers for the crisis. However we should be aware that it is rooted in a long period of ideological warfare on the part of the ruling class. We need to see the dangers inherent in these approaches, study the effects of previous government actions and learn lessons from that. The task for those opposed to the current system is to explore ways of breaking away from the failed policies of the past and present and to struggle for viable long-term alternatives.

Biographical Note

Kaye Richards is an independent socialist-feminist and solo mother living in the Wellington region. This article first appeared on the Aotearoa Workers Solidarity Movement (AWSM) website in 2015. In addition, she was interviewed by AWSM in our newsletter Solidarity in 2011.


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