How NZ's much-admired Covid-19 response helped fuel a housing crisis

Wellington

FOR many, life in New Zealand's capital Wellington is largely back to normal. Its windswept streets are crowded with maskless shoppers and office workers, bars are packed and the economy is humming along.

In the Parliament building, Prime Minister Jacinda Ardern and her government have garnered lavish global praise for controlling the Covid-19 pandemic where many other leaders failed. But across town, staff at the Wellington City Mission are struggling to cope with soaring homelessness and inequality as the pandemic - and the government's response - inflames what was already among the world's least affordable housing markets.

"This is a crisis," says Murray Edridge, the head of the Anglican Church-affiliated charitable trust. "Inequality was always growing, but Covid-19 is the proverbial straw that broke the camel's back."

The number of people seeking emergency housing in the city of 211,000 has tripled in the last 12 months, as rents hit record highs and the pandemic disproportionately impacted lower earning jobs.

Around the country, motels and other temporary boarding facilities converted to emergency housing are increasingly crammed with desperate families seeking shelter, with about 4,000 children now in such state accommodation.

"Most of the cases that come to my desk are situations that will break our hearts," said City Mission's Mr Edridge. "I met someone with two kids this summer who was in emergency housing for 15 months."

New Zealand is experiencing what economists call a "K-shaped" recovery, in which those on top benefit while those at the bottom see their prospects deteriorate. It's a global phenomenon, with the well-off using cheap access to capital and government coronavirus stimulus spending to scoop up assets from stocks to art and property.

New Zealand's pandemic-inspired policies have translated into cheaper mortgages, allowing affluent "kiwis" to upsize their homes and build up portfolios of rental investment properties, fuelling a further surge in house prices.

The 24 per cent year-on-year increase, on top of a 90 per cent rise in the preceding decade, has locked out first-home buyers and low income earners. Instead, investors flush with funds have become the biggest property buyers - some 40 per cent of houses bought in the final quarter of 2020 were by owners of multiple properties.

"The explosion of wealth inequality in New Zealand's context was related to the housing boom," said ANZ chief economist Sharon Zollner. "The increase in wealth of those lucky enough to own property, and those spectacularly lucky to own more than one, has been extreme."

Rents have also risen across the country, spurred by a legacy of years of under-investment in new houses and strong immigration. Even before the latest surge, housing costs were 45 per cent of income for households in the lowest fifth for income distribution, according to a 2019 Organisation for Economic Co-operation and Development (OECD) report. The country now tops the list for the most unaffordable housing among OECD nations.

Rising inequality inflamed by the housing crisis is arguably the biggest political challenge facing Ms Ardern's centre-left government in its second term in office. Her popularity soared with her response to the pandemic that keep nationwide cases to barely 2,500 and led to an emphatic election win for her Labour Party last year. But opinion polls since show her support slipping as the housing shortage and sky-high property prices undermine New Zealand's egalitarian self-image.

Housing and inequality were already major issues when Ms Ardern came to power in 2017, and she vowed to tackle both. But her government's flagship KiwiBuild project foundered, and much-hyped projects like the "Wellbeing" Budget has had little impact on the ground.

The government and central bank supported the economy through a combination of measures that enabled it to quickly bounce back after the virus was eliminated. The Reserve Bank of New Zealand pumped the economy with record low borrowing rates, a NZ$100 billion (S$95.4 billion) quantitative easing programme and mortgage payment holidays for homeowners. The government's NZ$50 billion pandemic response package saved jobs, but added fuel to the house price fire. REUTERS