Figure 1: working poor – proportion of employed persons with income below the poverty line (50% of median disposable income) living in households with a working age head and at least one worker in USA, UK, Canada, Australia and New Zealand, 2013
Figure 1: Female/male earnings ratio by partner status and motherhood, 2004Source: LIS Cross-National Data Center in Luxembourg – Wave VI; individuals with positive earnings only. .
The Government admits that its proposed insulation and smoke alarm standards for rental properties could push up rents by more than $3 a week. Under legislation to be introduced in October, social housing would have to be retrofitted with ceiling and underfloor insulation by next July, and all other rental homes by July 2019.
An important driver of lower quality housing in New Zealand is the restrictions on land supply. The costs of those restrictions, land makes up 60% of the cost of new houses rather than 40%. Land prices have doubled and tripled in a number of cities. As the Ministry of Business, Innovation and Employment has said:
The median price of sections has increased from $94,000 in 2003 to over $190,000 today (compared with $NZ 100,000 per section in the US), ranging from Southland ($82,000) to Auckland ($308,000)…
Section costs in Auckland account for around 60% of the cost of a new dwelling, compared with 40% in the rest of New Zealand.
The RMA is the Resource Management Act and was passed just before New Zealand housing prices started to rise rapidly.
Source: Dallas Fed; Housing prices deflated by personal consumption expenditure (PCE) deflator.
Higher land prices for new houses spill into the prices of existing houses, which are now much more expensive than they need to be but for the RMA inspired land supply restrictions in Auckland and elsewhere in New Zealand.
One way in which homeowners and landlords can keep costs down when buying a house either for their own use or as an investment property is not to invest in insulation and smoke alarms. Deposits are less, mortgages are less and rents are less. It all adds up.
#nzqt today. John Key insists tht hungry kids in schools don't exist. Schools, teachers, parents insist tht they do. http://t.co/n1M3hTe5oh— Green Party NZ (@NZGreens) December 03, 2014
Put simply, you cannot argue that a few dollars is a lot of money to people on low incomes but ignore the consequences for their welfare of a $3 per week increase in their rents.
New QV figures show Auckland house prices are up a massive 16.1% on last year, now estimated to reach $1m by Aug '16. http://t.co/DwAU79ozCy— New Zealand Labour (@nzlabour) June 09, 2015
If tenants were willing to pay for insulation, landlords would provide well-insulated rental properties to service that demand. Walter Block wrote an excellent defence of slumlords in his 1971 book Defending the Undefendable:
The owner of ghetto housing differs little from any other purveyor of low-cost merchandise. In fact, he is no different from any purveyor of any kind of merchandise. They all charge as much as they can.
First consider the purveyors of cheap, inferior, and second-hand merchandise as a class. One thing above all else stands out about merchandise they buy and sell: it is cheaply built, inferior in quality, or second-hand.
A rational person would not expect high quality, exquisite workmanship, or superior new merchandise at bargain rate prices; he would not feel outraged and cheated if bargain rate merchandise proved to have only bargain rate qualities.
Our expectations from margarine are not those of butter. We are satisfied with lesser qualities from a used car than from a new car.
However, when it comes to housing, especially in the urban setting, people expect, even insist upon, quality housing at bargain prices.
Richard Posner discussed housing habitability laws in his Economic Analysis of the Law. The subsection was titled wealth distribution through liability rules. Posner concluded that habitability laws will lead to abandonment of rental property by landlords and increased rents for poor tenants.
What do-gooder would want to know that a warranty of habitability for rental housing will lead to scarcer, more expensive housing for the poor! Surprisingly few interventions in the housing market work to the advantage of the poor.
Will the Govt intervene in Auckland's housing crisis? Or will home ownership become a preserve of the wealthy? http://t.co/CK2AnCeuYB— Green Party NZ (@NZGreens) February 05, 2015
Certainly, there will be less rental housing of a habitability standard below that demanded by do-gooders in the new New Zealand legislation. In the Encyclopaedia of Law and Economics entry on renting, Werner Hirsch said:
It would be a mistake, however, to look upon a decline in substandard rental housing as an unmitigated gain.
In fact, in the absence of substandard housing, options for indigent tenants are reduced. Some tenants are likely to end up in over-crowded standard units, or even homeless.
The straightforward way to increase the quality of housing in New Zealand without increasing poverty is to increase the supply of land.
Govt advised even with best financial mgmt, not 1 treat, a family with 2 kids could still be down by $72 each week. http://t.co/VDLmdO8gz9— leah haines (@writeonleah) July 09, 2015
As land prices fall, both homebuyers and tenants will be able to pay for better quality fixtures and fittings because less of their limited income is paying for buying or renting the land.
In a system where income goes disproportionately to the already well-off, ordinary workers are missing out on the rewards of their efforts, to the tune of billions of dollars a year. Welfare benefits, cut by a quarter in 1991 and increased just 8 per cent in the last budget, are far too low to meet people’s basic needs.
The result is a doubling of child poverty and the return of childhood diseases unknown in most developed countries – a national embarrassment, as one researcher described it.
Figure 1: % child poverty in New Zealand (before and after housing costs), 60% 1998 median constant value, 1982 – 2013
Source: Bryan Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013. Ministry of Social Development (July 2014), Tables F.6 and F.7.
The only thing noticeable in the downward trend in child poverty in New Zealand since its doubling with the sharp recession in 1990 with double-digit unemployment rates is child poverty stop falling shortly after in-work family tax credits were introduced in the form of Working for Families in 2005.
New QV figures show Auckland house prices are up a massive 16.1% on last year, now estimated to reach $1m by Aug '16. http://t.co/DwAU79ozCy— New Zealand Labour (@nzlabour) June 09, 2015
There was a break in trend in the long decline in child poverty as soon as in-work family tax credits were introduced in New Zealand. I’m sure this is a coincidence because, as Brian Perry said when discussing the introduction of Working for Families in 2005:
The 2004 to 2007 period was the only one in the 25 years to 2007 in which the incomes of low- to middle-income households grew more quickly than those of households above the median.
The real killer in New Zealand in terms of poverty and inequality are housing costs. Housing costs are wholly under the control of government through its control of the supply of land, which is restricted at the behest of the parties of the left.
Figure 2: real equivalised household incomes (before and after housing costs): changes at the top of lowest income decile, New Zealand, 1982 to 2013
Source: Bryan Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013. Ministry of Social Development (July 2014), tables D.2 and D.4.
Figure 2 shows that real equivalised household income after housing costs has not grown and in fact has fallen for the bottom 10% of the income distribution in New Zealand.
It is the left-wing parties who oppose measures to reduce housing costs and and increase the supply of land through reforms to the Resource Management Act and the relaxation of the Auckland metropolitan urban limit.
Labour and the Greens are in effect keeping the poor poor to win middle-class votes.
Figure 3: real equivalised household incomes (before and after housing costs): changes at the top of the top, middle and lowest lowest income deciles, New Zealand, 1982 to 2013
Source: Bryan Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013. Ministry of Social Development (July 2014), tables D.2 in D.4.
Figure 3 shows that those in the middle and higher deciles, a political territory rich in swinging voters, are still doing well after housing costs. The parties of the left are collaborating with a middle-class home owning voter while betraying the working class and its aspirations from home ownership and quite simply affordable housing costs when they rent.
The increases for all groups may be understated by the inability of living standards measures to adequately account for new goods, product upgrades and rising life expectancies.
Don’t these graphs show that everyone is richer in New Zealand than 30 years ago and there has been not much change in either child poverty or inequality for coming on for 20 years? The fall in child poverty started before the introduction of Working for Families.
Technological progress in the form of new goods and product upgrades are poorly captured in measures of living standards over time as is increases in life expectancies.
Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.
In Hume’s spirit, I will attempt to serve as an ambassador from my world of economics, and help in “finding topics of conversation fit for the entertainment of rational creatures.”
“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.
Utopia, you are standing in it! 
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