Free advice

We've hit the point where the perception of a rental housing crisis in Christchurch probably matters more than the underlying stats.

Gerry Brownlee points to aggregate figures on rental prices in Christchurch to argue that our increases haven't been astronomical relative to those elsewhere in the country, but aggregates can conceal a lot. A forty dollar a week increase in average rental prices implies very different things about overall affordability if it comes from large increases at the bottom end of the market and minor increases at the top than if it comes from proportionate increase across the board; I suspect the former is what's going on.

Every time I read the comments sections on The Press's reporting on the housing crisis, I see evidence of strong heterogeneity across the market. Lots of people report large rent increases and trouble finding anything that's liveable within their budget; a few landlords report problems in finding tenants for decent sounding properties at reasonable prices. Location matters in housing though - people have jobs in fixed locations, kids in schools, and might need access to public transport.

Even if Brownlee were right and my hunch were wrong, he still comes across as heartless. And Brownlee is right about one thing: proposed rental subsidy schemes will just push up the price of rental housing absent supply moves.

Some supply moves are coming. Housing New Zealand's stock of social housing seems almost ready to come back on-stream. I expect that the biggest part of the delays here have been insurance related - Housing NZ owns a lot of properties and I'd expect that their insurance coverage is split across multiple insurers. If different insurers covered different portions of the burden of costs coming from different events, as would have been the case, for example, if some insurers wanted to reduce their exposure subsequent to the September event, then there were almost certainly fights among the insurers about what proportion of damage across the hundreds of Housing New Zealand owned houses were caused by September, Boxing Day, February, June, and other events. Rushing to repair before the insurance were sorted would make it impossible to sort out which insurer were liable for which portion of costs and likely would have wound up costing the government rather a lot in forgone insurance payouts for repair costs.

My free advice to Big Gerry. Get some data on rental availability at the bottom tail of the distribution: stop looking at averages. One place you could look is bonds placed with the Tenancy Board.* Separate bonds out by quartile and look at the movement in the bottom quartile of bonds placed over the last five years. Then say something like the following.

When we look at aggregate changes, Christchurch's rental price increases have been higher than elsewhere, but not alarmingly so. But averages mask a lot. There has been a substantial reduction in the number of rental properties available and, in particular, at the lower end of the market. While we applaud the sentiment behind some proposed initiatives, like rental subsidies, these do not really address the core problem: lack of available housing options at the bottom end of the market.

Then announce that you have instructed Christchurch Council via your Powers As Grand Poo-Bah to allow home owners to build self-contained flats into their current properties. This is the single best thing you can do to get properties on-stream quickly and at reasonable cost. Why?

• You need to sort out insurance messes to build new houses. Anybody building a flat into his currently owned and insured property already has insurance; the coverage just extends.
• Building new greenfield or substantial brownfield developments requires sorting out infrastructure. That takes time. A whole bunch of individual homeowners each putting in a small flat spread out across the city does not. 
• If I'm right about heterogeneity mattering, then who is better placed to figure out which parts of town need more rental accommodation than homeowners in those parts of town who can see what's going on with rents and availability in their neighbourhood?
• It is a policy that costs nothing if there actually is no housing crisis. I'm sure that more than a few folks in government remember the big push last winter that led to a pile of unused rented caravans meant for the homeless. 
• It's scaleable and only scales to the extent that property owners expect there to be real demand for the properties. 

It's a policy that works if it's needed, isn't a bad idea even if it's not, and is a good political move in either case relative to denying the existence of any kind of housing availability problem. 

* Landlords charge up to four weeks' rent as bond; this money is placed with the Department of Building and Housing. Surely they know how much money has been put up as bond over time and the number of weeks' rent it represents. Advantage: this gets you current rental cost for folks switching houses - the people who are displaced and are seeking new accommodation. Average rents might not have increased by as much as rents on those shifting properties if landlords worry about long term relationships with existing quality tenants.