Saturday, March 28, 2015

Social housing reform: transforming the homeless into homeowners

National is proceeding - with no discernible public mandate - with the sale of state housing and the establishment of a "market" for social housing. In short, and as others have pointed out, this is little more than an ideological more-market crusade by 1980s throwback Bill English. However, much Treasury may wish otherwise, there is no market for social housing: if there was, it would already exist. The lack of housing available for low- (and increasingly middle-) income groups is an example of market failure. Market failure in housing was noted by Friedrich Engels 170 years ago, and little has changed.  Indeed, the reason we have state housing at all is because the market failed to provide 70 years ago.

There is no reason to celebrate the sale of state housing and the introduction of corporate landlords to the social housing sector: it's a bad deal for taxpayers, there are no incentives to increase the supply of affordable houses, and the most marginalised and difficult to house will find their already limited housing options further constrained.

The government wants to sell state houses at a "reasonable value" for taxpayers; it wants social housing providers (of which there are very few in New Zealand) to rehome tenants booted out of the sold state houses; and provide other social services for said tenants (see here). In the imagination of Wellington's policymakers it is perfectly feasible that a "market" for social housing will emerge as housing providers bid to house low-income and possibly problematic tenants. Given that the whole policy is being made up as they go along (as pointed out in this excellent critique by the Herald’s Dita de Boni), there's no reason to suppose that taxpayers or tenants will be better off even if this currently non-existent market emerges.

The Ministry of Social Development (MSD) has produced a presentation which they are using in the MSD/MBIE workshops currently touring the country. The workshops are, in part, an attempt to persuade organisations with no capital or relevant skills to become social housing providers (we'll come back to the risks involved with that). The presentation notes there are about 5,000 people on something called 'the register'. This is just the renamed former Housing New Zealand (HNZC) waiting list. In order to help meet the urgent needs of this group, MSD has been tasked with ensuring that the current 62,000 income-related rent subsidies (IRRS) paid to social housing tenants is increased by 3,000 to 65,000 by 2018 (pp. 4 and 13). At the risk of pointing out the obvious, those 5,000+ families need accommodation now. Then there's the people who need accommodation urgently but are not even eligible to get on the waiting list. The presentation, and its sister presentation from MBIE, make clear that the government has no intention of stepping in to help increase the supply of housing. No capital is on offer (when the UK established its social housing providers, they received 100% capital subsidy), there are no cheap, state-backed loans, and no tax breaks (only private landlords and politicians get those). In other words, when it comes to the critical issue of the supply of affordable housing, National is crossing its fingers behind its back and hoping for the best. The 3,000 additional IRRS are more about seeming to do something rather than substantive policy.

Selling state houses won't increase their number, it merely changes ownership. Providers including the Salvation Army have either stated the price of the houses would need to be zero - a proposition that is not "reasonable value", at least for taxpayers - or have done the math and concluded that they do not have the capacity to purchase and upgrade state housing, provide additional social services, and manage a large housing stock (see also here). In fact, it could reasonably be argued that in a country as small as New Zealand, only the state has the capacity to do those things.

With the wheels falling off its flagship housing policy, National has been forced to admit
it will cost about $1.5 billion to upgrade the state housing stock before sale. Social housing agencies have stressed the poor state of the stock is a powerful disincentive to purchase state houses, hence the reluctance to pay 'market' value for the houses. Meanwhile, initial promises that former state houses would have to remain as social housing stock are being wound back, with developers and large financial institutions now being touted as potential buyers. This doesn't sound like a scheme to "provide more New Zealanders in need with quality and affordable housing." Quite the reverse.

Overall, the economics of transferring the ownership of state housing to the private sector is uncertain, if not downright risky. At one workshop it was pointed out that getting into social housing with no government support except IRRS for tenants was a big financial risk for providers. But the same could also be said for taxpayers. The scheme, which will provide market rent top-ups to landlords for social housing tenants (who will, as they do now, pay 25% of their income in rent) just creates a huge trough for the private sector snout. Despite this potentially enormous cost, there is no guarantee that the most needy families will receive the accommodation they need. Taxpayers might get fair value for the assets their parents and grandparents paid for, and which provided stable shelter for many of them, but that's looking increasingly remote. The only way that can be guaranteed is if housing is turned over to the private sector unconditionally, and current tenants are forced to move...somewhere else.

Where have National’s social housing policies come from, one might ask. In truth, none of it should be a surprise. National's lack of commitment to state housing, and its desire to fob off responsibility for social services to the private sector has been clear for some time. In 2009 it set up a workgroup (including the Salvation Army and the Auckland City Mission) to find a more “effective and efficient delivery model for state housing.” The group's 2010 final report (Home and housed: A vision for social housing in New Zealand) specifically argued for curtailing the Crown's role as the sole provider of social housing.

Casting back even further - to prehistory, in fact - when the current Minister of Finance was cutting his teeth at Treasury, Treasury published its 1987 Briefing to the Incoming Government - an incoherent tome entitled Government Management. The housing section argued that (p. 163):

One that the private sector does not face adequate incentives to supply housing to low income and other disadvantaged groups. No evidence is given to support this view, other than the absence of competitors in this area. However it would be surprising to find any supplier able to contest this market without a subsidy in line with that given to the Corporation.

And so in 2015 it came to pass that IRRS were made available to private social housing providers in order that they can 'compete' with Housing New Zealand. Unfortunately, in keeping with 30 year-old advice, this current policy is about income support, and provides "no incentives to supply housing to low income and other disadvantaged groups".

Another facet of the reforms is that social housing providers will be expected to be able to "link" with other social service providers to help tenants get the services they need. Reflecting Social Housing Minister Paula Bennett's inability to grasp the reality of many households' low incomes, the example used by MBIE shows someone unable to pay their rent being linked to a budgeting service. This example is very telling: it says these reforms are not about addressing deep and long-standing structural issues of poverty and inequality, but about managing and monetising poverty.

In MBIE-world linking housing and the provision of social services probably seems unproblematic. In the real world - the world where the government has been cutting funding for social services (including budgeting services) for many years now - this is a pipe dream. What will happen is that if social housing providers have to provide or sub-contract social service providers, the most difficult, disadvantaged tenants will simply will not get housing. Difficult mental health patients, and people with long-term disabilities and/or behavioural problems will find themselves with very few housing options indeed. If, as is likely, the government introduces social impact bonds to paper over the cracks of poverty and disability, then the truly needy will be further marginalised as corporates house easy-to-deal-with population subgroups.

The government is at pains to paint possible social housing providers as warm, caring entities who will house all-comers. It is highly improbable that this will be the reality. Social housing providers are already able to ‘filter’ the waiting list to get the tenants they prefer. Imagine this discrimination being exercised by faith-based groups or iwi groups focused on looking after their own. One of the reasons the state took over social assistance from private charities in the 19th and early 20th centuries was that provision by charities was arbitrary and discriminatory. Why will this folly be any different?

There will always be a need for the state to step in and house the most desperate and disadvantaged. Reflecting a typical inability to understand the impacts of her policies, Minister Bennett stated at a forum that the "tenant focus" of the reforms was transforming "the homeless into home owners." Rubbish. The homeless will remain homeless, and the lack of political commitment to providing quality affordable housing means their numbers will increase. Is this really the best we can do, New Zealand?