What is 'affordable housing'?

Insights
16 November 2012, Issue 24

In this issue:
• What is 'affordable housing'? | Luke Malpass
• Gender diversity week - a timely reminder | Catherine Harland
• The National Standards anti-climax | Rachael Thurston
• All things considered ...
• On the record

What is 'affordable housing'?
Luke Malpass | Research Fellow | luke.malpass@nzinitiative.org.nz

The policy problem of ‘affordable housing’ is all the rage. But aside from a vague sense that housing is too expensive, what does the term actually mean? Is it really unaffordable, or just more expensive and less accessible than many would like?

Clearly high house prices are a problem – high levels of private indebtedness to pay for unproductive assets are a drag on national economic performance.

What most people mean by ‘unaffordable housing’, is that housing is artificially expensive. One that, for many reasons, cannot respond to spikes in demand the way other markets do.

The problem is of course complex. It has been the subject of a 330-page report by the Productivity Commission, to which the government has made a tentative response and is conducting a more detailed study on the matter.

The housing market has not always been this way. Until the 1970s, New Zealand built more houses per year than now, to service a smaller population with fewer households. Dropping building rates, growing population, and dispersed households due to changing living patterns have resulted in a housing shortage and subsequent price inflation.

New Zealand’s building industry is well known to be a cottage industry that lacks population and available land for large-scale projects, particularly in Auckland. Whether one agrees with the release of more land? or not, land supply is undoubtedly the single biggest factor driving up the cost of land and the cost of building.

On the building and finance side, the picture is far more layered. Infrastructure costs that must be borne by councils with limited methods of raising funds is a crucial issue. Often the economic and political incentives faced by councils do not encourage development.

The situation is complex and some of the fashionable cargo cult ideas floating around to deal with the shortage, such as high-rise dwellings or a capital gains tax, are simplistic and woefully inadequate.

Robust research into why New Zealand’s housing market functions as it does is the key to formulating good policy to fix it.

If this topic is of interest to you and you want to hear more, Luke Malpass is giving a talk on affordable housing at The New Zealand Initiative offices on Tuesday, 20 November. Register here.
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Gender diversity week - a timely reminder
Catherine Harland | Research Fellow | catherine.harland@nzinitiative.org.nz

The first week of November was Gender Diversity Week, which is a sad reminder that no country has yet achieved gender equality.

The Global Gender Gap Report 2012, released in late October, shows New Zealand ranked sixth out of 135 countries, having closed 78% of the gap between men and women. New Zealand, along with 19 other countries, ranked first equal for completely closing the gender gap in educational attainment. Rankings were lower for political empowerment at ninth place and economic participation and opportunity at fifteenth place. Data in the report adds to the mounting body of evidence that gender diversity directly benefits business performance, productivity and economic competitiveness.

Studies in 2007 by McKinsey & Company and Catalyst showed that companies with more women on their boards or in top management positions tended to be more profitable. A recent study by the Credit Suisse Research Institute found that from 2005 to 2011 across 2,400 companies in 46 countries, those with at least one woman on the board outperformed those without women by 26%.

Last year Goldman Sachs found closing the gap between male and female employment rates would boost New Zealand’s GDP by 10%. The report also identified the lack of women in leadership and on boards as needing urgent attention. Its analysis of 82 of the top 100 NZX-listed companies found only 11% of board positions were held by women; 45% had no women on their boards; and in companies based outside Auckland or Wellington, 63% had no women on their board. While state sector boards and committees boast 41% of women members, they still fall short of the 50% target set in the 1980s.

Some action for creating pipelines for women into leadership and directorships is underway through the 25 Percent Group, NZX, Global Women, and Women on Boards New Zealand. A handful of New Zealand companies have signed on to the United Nations Women’s Empowerment Principles that are designed to intensify efforts to bring women in at all levels of business.

But as the November 2012 McKinsey article, ‘The Global Gender Agenda’, states, “many more committed leaders need to prioritise treating gender diversity like any other strategic business initiative. Leaders need to ask for and talk about the data, establish a culture of sponsorship, and raise awareness of what a gender diverse work environment looks like.” Shifting mind sets and changing behaviour needs champions.
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The National Standards anti-climax
Rachael Thurston | Research Fellow | rachael.thurston@nzinitiative.org.nz
In 2010, the Ministry of Education introduced new National Standards for primary schools. In September this year, stuff.co.nz published the first data set. Hidden in the foreword was a disclaimer: results are not a proxy for quality.

The debate on National Standards has conflated two distinct issues: national standardised testing and presentation (or not) of results.

National Standards aim to measure primary school numeracy and literacy levels. This is not a new or crazy concept; New Zealand has routinely done this in one form or another for years. Measuring the skill levels of students is useful – but it must be done in the context of other relevant factors?

But opponents of National Standards have focused almost entirely on what to do with the data once collated, as if the primary purpose of the standards was to demonstrate the quality of schools rather than give information to parents.

The current data set is an analytical tool to show a student's standard compared to class mates and other student's nationally. However, its usefulness for finer analysis is limited by subjectivity. School A may assign a student a ‘well above’ standard whereas school B would have assigned an ‘at’ standard to the same student.

So it is a crude way to determine the quality of a school.

Others argue that publishing the data in league tables will undermine the learning of children; however, this argument is tenuous. The Press, in Christchurch, used to publish school certificate and bursary results every year with little fuss. Students were not disadvantaged by seeing how their school did overall or by comparison to others.

It is possible that some parents may have read the published results and used them to choose a college for their child. But what is objectionable about that?

Most parents weigh all manner of factors to decide where to send their children to school. How well a school performs on National Standards is just another factor for consideration.

In any case, suggesting that parents would base their choices solely on National Standards is ludicrous. It is fairly apparent which schools do better academically; you don’t need a league table to figure that out.

There is nothing to fear from publishing this data, and it’s insulting to suggest that parents cannot be savvy consumers of this information.

All things considered ...
• Graph of the week courtesy of Capital Economics Ltd. The new Household Labour Survey is out. Just how did the scrapping of the youth minimum wage affect youth employment rates?
• The Chinese may wish to invest in Fonterra! Cue the racists: the yellow peril is upon us! But actually, it should be welcomed as much needed investment.
• Things you won’t read about Australia. You call that corruption? Now this is corruption! A New South Wales Labor Party factional player allegedly turned a $200,000 investment into $100 million.
• Two premiers say they did not control their government but faceless factional players did.
• Besides being better at cover ups than the Catholic Church, the BBC has other issues. For example, its health and safety police warn people against looking for aliens!
• As November rolls along revealing more tragic facial hair, Jem Beedoo explains the merits of a moustachioed man.
• Eric Crampton once again points out the propagandising of anti-alcohol crusaders.
• 100% Pure Advantage has released a new report in the global green race. But who has entered and how fast are they running? The report is here.
• And finally, was this the best goal in the history of association football?

On the record
• A dyed-in-the-wool EU accounts scandal, Oliver Hartwich, Business Spectator, 15 November 2012

Oliver Hartwich interviews Swedish economist Christian Sandström.
24 October 2012
Play video

Initiative@home with Adam Creighton.
24 September 2012

Play video

Government vs. Markets with Vito Tanzi.
21 August 2012

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