Thursday, 25 February 2016

Poverty, homeownership, political economy, and a modest proposal

The New Zealand Initiative today launched a report on the state of poverty in New Zealand. Two key findings for us today:
  1. Poverty in New Zealand, relative to other countries, is highly concentrated among children. The elderly have very very low poverty and hardship rates. Children, not so much.
  2. Poverty is substantially affected by housing costs. Before housing cost measures of income poverty are much better than those after housing costs. 
This is in part due to NZ Super. Every old person gets a transfer from the government equal to two-thirds of the median wage. Since poverty lines are generally defined around that fraction of the median wage, you don't get old people in poverty. You also have disproportionately high homeownership rates among the elderly, so the rise in housing costs doesn't really affect them.

Yesterday's Auckland Council meeting on the Unitary Plan demonstrated much of what's wrong with urban planning in New Zealand. Elderly home-owning people, resistant to any potential change anywhere near them, are very likely to vote, do not care about the costs of home ownership (and, indeed, mock younger people showing up at those hearings), and are able to bully councillors into blocking any increases in density. Renters' interests then are not particularly well represented.

And so, my modest proposal:

Henceforth, eligibility for NZ Super will be means-tested, but in a particular way. Eligibility will be restricted to those who do not own a house, either themselves or through a trust, and who do not rent their home from a family member. Those approaching retirement would be entirely free to sell their home, bank the proceeds, and rent a home; or, they could maintain their home while foregoing NZ Super.

I'm still not sure whether I'm serious on this one.* But it is fun to think about.

Update: The money saved from the NZ Super bill could, in this proposal, be redirected towards targeted programmes in lower decile schools.

* Update 2: It is likely impracticable. Just think of all the workarounds. Prohibited from owning? Sell to a younger friend with a long-term lease agreement and an option for your own kid to buy back at a fixed price at a later date. But it's still fun to think about.

Update 3: I was far too quick in the paragraph about NZ Super. NZ Super is set at two-thirds of the average after-tax wage for a couple, and single elderly get 65% of that rate. That won't get either a couple, or an individual, up to the relative poverty line on its own. The elderly don't show up in the relative poverty stats when a 50% of median household income line is used, and don't show up in material hardship measures, and don't show up in AHC measures of poverty, but do show up in the "relative to 60% of BHC median income" measure. I thank Bryan Perry for the reminder.

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