Lots of writing by the talking heads in the media about the government’s up coming budget.
The Word on the Street is summerised nicely by former Nayland College old boy class mate of mine, Bryce Edwards. Writing for that hand-wringingly leftish, rainbow-coloured, de-colonised state broadcaster RNZ, Bryce advises Jacinda and Grant that they need to take poverty seriously.
TAKING POVERTY SERIOUSLY
Bryce’s article is deep in references to what lots of other people and organisations are saying. Some of those other people are even him.
And they’re all saying the same thing – beneficiary rates need to increase. Not just pretend increase. Seriously increase.
You’d almost be inclined to agree, on the share weight of the written noise alone that they must all be right. All those people saying the same thing? Must be right. Right?
TWO WAYS OF MAKING SOMEONE BETTER OFF
But aren’t there two ways to make someone better off? We could dole out cash and increase incomes. Or we could remove impediments that make people pay more than they should and decrease costs.
Both roads lead to Rome… But one path gets the State more involved more deeply in people’s lives. Which becomes yet another tool that can be used to bribe or threaten at election time.
And the other gives people the effective choices to make decisions that let them live their lives as well off as they can be. Everyone, not just those on state sponsored incomes.
IMPROVING WELFARE THROUGH ADDRESSING COSTS
I’m talking about really bursting the housing bubble: a supply-side onslaught to the Resource Management Act that allows people to build what they want, where they want.
“Beneficiaries spend almost a third of their income on rent on average, so rising rents have a much bigger impact, than for all other groups,” consumers prices manager Katrina Dewbery said. “In contrast, beneficiaries spend relatively little on mortgage interest payments so generally don’t benefit from lower interest rates.”
Statistics New Zealand, https://www.stats.govt.nz/news/annual-inflation-almost-three-times-higher-for-beneficiaries
Double whammy for the beneficiaries:
- they’re the most exposed to rent increases (says StatsNZ), and
- rental increases are being driven by property investors who are seeking higher returns through milking renters for all they have.
And as rents become unaffordable for the least wealthy, bad things happen.
DAMNED IF YOU DO, DAMNED IF YOU DON’T
The government looks stuck between a rock and a hard place.
If it increases benefit levels, it will accommodate increased rents, which will make rental housing returns more attractive and lock in this icky housing bubble for everyone.
If it doesn’t address fast increasing rental increases or housing affordability, outrageous solutions like sticking people in empty hotels will continue.
TWO POLICY LEVERS NEEDED
Tinbergen’s Rule is that if you want to fix two things, you need two tools (preferably levers – heh heh .. you economists get the joke).
The two things you want to fix is the housing problem of the homeless, and the housing bubble problem of everyone.
Throwing more money at beneficiaries is one lever, and it won’t make both problems better. It will actually make both problems worse. Despite what Radio New Zealand columnists think.
The two policy levers would be:
- Paying over the market rate for housing people who can’t afford to pay the market rate, and make solving their housing solution attractive to the market to address the homelessness issue
- Aggressively burst the housing bubble and address the affordability issue.
If you’re worried that the first bullet point means “layering the pockets of fat cats”, then give the role to Housing New Zealand.
If you don’t think the government is a great-customer-responsive provider (ask any immigrant for their views on this), then put the quantum of housing up for competitive tender, and use the signaling value of prices and competition to figure out the competitive above-market housing cost of the lower end of tenants.
And maybe something like these policies, or these policies could help with housing affordability.