Staggering government borrowing reaches 100,000,000,000! Auckland housing more unaffordable than San Francisco or London!

Pandemic drives a huge increase in debt

Government borrowing reaches 10,000,000,000 New Zealand dollars

The latest Treasury data shows that New Zealand government debt passed NZ$100,000,000,000 over the past year, equivalent to 32.6% of GDP,

an increase of 73% compared with February 2020. In 2020, New Zealand government debt was US$59,700,000,000, equivalent to just 19.5% of GDP.

This means debt has increased enormously over the past year as a result of COVID-19. Treasury expects debt to reach NZ$190,000,000,000 by 2025, equivalent to 46.9% of GDP.

Faced with such substantial growth in government debt, Finance Minister Grant Robertson indicated in his economic recovery plan speech that spending in some areas would be approached cautiously this year. This included cutting climate change spending and reducing costs in the economic recovery Budget.

{ad}

Finance Minister: housing is the economic recovery plan's top priority

Finance Minister Grant Robertson said the government's priorities this year remained protecting New Zealanders from the pandemic's effects and addressing three fundamental issues: housing affordability, climate change and child wellbeing. These remained the government's most pressing concerns. 

“We are committed to directing the necessary funding towards the economic response and recovery, to help us recover from COVID-19, while focusing on the areas of greatest current need.”

“This year's Budget, to be announced on 20 May, will focus on a careful balance: continuing to invest in New Zealand's economic recovery while reducing the debt ratio accumulated during COVID-19. With debt of NZ$100,000,000,000, reducing this enormous burden is also an important task,” Finance Minister Grant Robertson said.

Prime Minister Jacinda Arder recently said she and Cabinet would establish a new unit to ensure spending went to the right places and “help us address these core priorities”.

 

3,800,000,000 is not enough!

Government may further increase housing infrastructure funding 

Faced with high house prices and a severe shortage of supply, the government announced a NZ$3,800,000,000 Housing Infrastructure Fund and a package of housing measures in March to address supply and demand. Social Development Minister Carmel Sepuloni also indicated in a speech that the government planned to increase housing infrastructure funding.

The Finance Minister said a crucial part of the government's support for the economy and future development was ensuring every dollar was spent where it mattered, and that public service initiatives continued to be implemented in support of the economic recovery plan. Although the government aimed to spend cautiously, excessive caution “risks undermining the recovery”. 

“Turning to austerity would simply mean taking longer to rebuild the economy. We will act responsibly to reduce debt and return to surplus. It is all about achieving the right balance of supply. We proved during the pandemic that we can do this,” he said.

 

Median house prices far outstrip median wages

Auckland housing is more “unaffordable than San Francisco or London”

Simon Angelo, chief executive and publisher of prominent New Zealand financial weekly Wealth Morning, said Auckland housing was now more unaffordable than housing in San Francisco or London. According to the 2020 Demographia housing affordability survey, every urban housing market in New Zealand was unaffordable.

Last year, Wealth Morning interviewed CAP, a nationwide organisation working on debt and poverty, and found that pressure from housing costs was a major cause of poverty. Many individuals and families had almost nothing left to live on after paying rent or a mortgage, while New Zealand had the most severe homelessness in the survey. 

The data indicates that almost 1 in every 100 New Zealanders is homeless. In the 2018 Census, Auckland home ownership had fallen to 59.4%, compared with 72.7% in 1991. That figure may now be lower.

Over the past five years, house prices have risen much faster than wages. Auckland's median house price, in particular, had reached 11.5 times median income by mid-2020. These figures clearly demonstrate the unaffordability of New Zealand housing, particularly for young people. 

Mortgage brokers say they commonly see New Zealanders with debt-to-income ratios of 6 times or higher, while the legal maximum for most UK home loans is 4.5 times. This is not just a housing issue, but a matter of survival for New Zealand's younger generation.

 

Only the government can truly solve the housing problem

Simon Angelo said: “We have examined this from several angles. In recent years, the housing system has broken down: the market has failed to build enough homes, while the government continues to benefit from housing construction through GST, tax on wages and so on. This comes down to a lack of coordination between central and local government. Central government could lead large-scale infrastructure development to support growth while addressing skill shortages in construction and the trades.”

 “The government achieved this after the Second World War, when thousands of homes were built across newly planned areas. Skilled tradespeople were brought in, and large numbers of workers trained in construction were taken on to build new homes. When local materials ran out, substantial quantities of equipment were even imported from Austria. This provided affordable housing for decades. The government now needs to plan again, starting with high-quality rental housing and a substantial supply of land to address the current housing crisis.”

Over the past year, New Zealand's average house price has risen by NZ$140,000. Auckland has experienced one of the world's fastest and most severe deteriorations in housing affordability. The government's policy interventions and Budget this year also show that addressing the housing crisis is its top priority.