Generation Rent: What's really the solution?
Generation Rent: Rethinking New Zealand's Priorities
Shamubeel Eaqub & Selena Eaqub
Bridget Williams Books, $15
Shamubeel Eaqub is very difficult to pin down: he's a neoclassical economist adored by parts of the political left, an assiduous networker determined to take on the establishment and a talented empiricist who's not afraid to act as a cultural critic. In Generation Rent these contradictions collide with the Eaqubs – Shamubeel co-authors the book with economist and partner Selena – taking on the economic, political and cultural forces pushing up house prices and leaving an entire generation with no choice other than to rent for the rest of their lives.
"Currently a young couple in Auckland needs to spend nearly half their income on mortgage payments to buy a modest home", explain the Eaqubs, "[and] if household incomes continue to rise at their historical rate of 3.5 per cent per year and house prices rise at the 8 per cent per year that investors expect [then] mortgage payments will be a staggering 80 per cent of a young couple's income by 2020". It's an alarming thought. Are we heading towards a patrimony, a society where the surest path to homeownership is inheritance?
The Eaqubs certainly see it as a possibility, especially in the absence of strong government action, explaining that "hereditary bequests or financial help from parents may well become the path to home ownership. Such an inheritance-based class system goes against the grain of what New Zealand is supposed to aspire to: an equitable and egalitarian society". Yet this shift towards inequality and capital accumulation among the few is not unique to New Zealand, as Thomas Piketty reveals in Capital in the Twenty-First Century.
Yet while the impact of rising inequality is generational, the causes are not. It may seem like a battle between young and old – with the old using rhetoric like "meh-llennials" and excuses like "young people prefer renting" (a human desire) to mask the fact that ownership is unaffordable (a structural feature) – but the problem is political. Successive governments have proved unwilling to take on entrenched and rapidly accumulating wealth. New Zealand still lacks a comprehensive capital gains tax, for example.
Reforming the tax system is one solution the Eaqubs propose as well as increasing the supply of housing in high demand areas and even investigating a population policy. "As a nation we have collectively stood by [and] let housing… become a privilege, not a right". Yet one solution remains under-examined in the book: lifting wages. In 2013 the Council of Trade Unions found that if pay rates had kept up with productivity rates the average wage would be $35.91 per hour as opposed to $26.70. A wage catch up is one way to make housing more affordable without secretly wishing for the bubble to burst.