1492676578139 - MBIE worried ministers won’t like their long-overdue housing affordability measure

MBIE worried ministers won’t like their long-overdue housing affordability measure

A new Government measure of housing affordability is more than a year late, and officials are worried ministers might not like what they see.

Cabinet first asked the Ministry of Business Innovation and Employment (MBIE) and Statistics New Zealand to create the Housing Affordability Measure (HAM) in 2012, filling a gap in official government statistics. The measure will show whether housing is unaffordable for both renters and first home buyers in specific areas and at specific income bands all across the country.

It is now long-overdue. The suite was meant to be released in 2015, then 2016, then February of 2017. It remains unclear whether it will make it out before the election, with officials noting its political sensitivity and the possibility that ministers would “disagree” with the measure.

Currently the Government lacks a proper housing affordability measure. This leaves the media and academia relying on third party data, and allowed Prime Minister John Key to point journalists to a handful of cheap Trade Me listings when asked about the housing crisis last year – there were no official numbers to rebut him with.

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This measure has been kept mostly secret, but popped up in an Official Information Act release from Treasury earlier this year. A Stuff request for more information on the project was delayed for months, but has finally been released, albeit with heavy redactions.

The documents paint a picture of an ambitious but troubled project, one that would give household level data on affordability for both renters and first home buyers at a “Tier 1” statistics level, the same quality as GDP and inflation numbers.

A spokeswoman for MBIE refused to answer any questions about the measure, including how many people were working on it, prior to the public release. Documents in the information release tell us much about how that release may play out.

RELEASE IT QUIETLY OR RELEASE IT LOUDLY?

MBIE officials put careful work into planning the roll out of what would undoubtedly be politically sensitive numbers, particularly in an election year.

At one point in October 2016, in a hurry to finally get the measures out, MBIE considered a “soft” release of the suite that November. This option, detailed in a memo to the Building and Housing Governance Board of MBIE, would involve “publishing the results paper and methods paper on MBIE’s website with a minimum level of media engagement” and informing ministers as part of routine weekly status report.

This lay in contrast to a “hard” rollout in 2017, where media was properly engaged and ministers were given fuller briefings. One of the risks of this strategy, again detailed in that October 2016 memo, was that “there could be a lack of ministerial agreement with the measures” and that “2017 is an election year, and this is a politically charged topic”.

The Kaikoura Earthquake, which massively damaged Statistics House, put both options off the table. It remains unclear when the measure will be released, but a later memo indicates it is likely to be in a “hard manner”.

WHAT THE MEASURE IS

HAM will make it easy to check whether an area is what the Government officially considers unaffordable – not just for first home buyers, but for renters too, and at several different income bands, going all the way back to 2002. It will be based on actual rents and mortgage payments made by individual households – not just averages.

The project is built with data from the tax returns, rents from bonds registered with MBIE, Reserve Bank interest rates, and Core Logic sales data. All of this data will be matched to specific households. While it is based mostly on Statistics NZ data MBIE have led the project. 

The two main measures will look at whether a renting household can afford to continue to rent and whether a renting household can afford to buy.

“Affordability – both current and historical – will be measurable by locality, household income level … housing tenure, and a range of house characteristics (size, age, etc),” the principal analyst wrote in a October 2015 briefing to Minister Nick Smith.

Instead of looking at housing as a percentage of income, the measure would set levels of “residual” income left over after housing costs for different income percentiles. A change late in 2016 meant that the “unaffordable” marker would be raised for lower income households, as the older measure – which used a consistent ratio across income groups – was “unrealistically low”.

Economist Shamubeel Eaqub said HAM will be very useful, but would not substantially shift the housing narrative.

“It doesn’t really matter how you measure it. It’s going to look bad, because it is bad.”​

THE GAP HAM WILL FILL

Throughout the entire housing crisis the Government has lacked an actual measure on when a property or area becomes “unaffordable”.

The price data media relies on comes from third parties likes REINZ and TradeMe. And the analysis of that data is left to the third parties too – sites like interest.co.nz, universities, and think tanks like Demographia. 

These third parties use internationally agreed upon measures – like that housing costs shouldn’t exceed a third of a household’s income – to decide when housing hits “unaffordable” territory. The sparse statistics that the Government do keep on this issue, mostly extracted from the Household Economic Survey, use the same measure.

Treasury and others will occasionally cite the third party data, but it lacks the imprimatur of government-quality numbers. This is why Prime Minister John Key was able to point to a few Trade Me results for homes under $500,000 in Auckland when he was challenged on the housing crisis last year: there was no real Government data to rebut him with.

Making HAM a “Tier 1” number – much like GDP or inflation – will give it serious statistical rigour.