by Jim Rose in applied welfare economics, economic history, labour economics, politics - New Zealand, population economics, poverty and inequality, urban economics Tags: child poverty, family poverty, green rent seeking, housing prices, land prices, land supply, Leftover Left, NIMBYs, top 1%

Closing The Gap – The Income Equality Project said today that “child poverty in New Zealand in 2014 was 24% as compared 14% in 1982”. What do they mean by this and what, importantly, does this trend imply for problem definition for child poverty policy?

Figure 1 below shows their numbers, which is child poverty in New Zealand after housing costs for poverty thresholds of 60% relative to a contemporary median as calculated by the Ministry of Social Development’s Brian Perry – the New Zealand expert on these matters.

Figure 1: % child poverty in New Zealand (before and after housing costs), 60% relative to contemporary median, 1982 – 2013

Source: Bryan Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013. Ministry of Social Development (July 2014), Tables F.6 and F.7.

The first thing to notice is, which is important, in figure 1 is before housing costs child poverty under the 60% relative to the contemporary median poverty threshold chosen by Closing The Gap – The Income Equality Project has been pretty stable for 30 years the New Zealand. Crisis, what crisis?

The top 1%’s New Zealand branch has not being doing its job – see figure 2. The New Zealand top 1% has failed miserably in further oppressing the proletariat, extracting more and more of their labour surplus, and grinding working class children into deeper and deeper poverty to increase their already excessive incomes – see figure 2. You’re fired as the until recently registered Democrat Donald Trump would say.

Figure 2: top income shares, New Zealand, Australia and USA

Source: top incomes-parisschoolofeconomics

Before housing costs child poverty has not risen for 30 years as shown in figure 1, which is the chosen threshold of child poverty of the Closing The Gap – The Income Equality Project.

The story about trends in child poverty is very different for child poverty when after housing costs child poverty rates are estimated – see figure 1.

Figure 1 shows a large increase in after housing costs child poverty in New Zealand in the late 1980s when there was a deep recession and double-digit unemployment. Since the early 1990s, as figure 1 shows, after housing costs child poverty has slowly tapered down from the high 30% in the mid-1990s to 24% now and that is despite the global financial crisis, which was the top 1%’s fault if the Left over Left is to be believed.

For before housing costs child poverty – as can be seen from figure 1 – there was an increase in child poverty before housing costs when there was a deep recession at the end of the 1980s. After before housing costs child poverty is now the same as it was both 20 and 30 years ago – see figure 1 .

In the longer run after housing costs child poverty rates in 2013 were close to double what they were in the late 1980s mainly because housing costs in 2013 were much higher relative to income than they were in the late 1980s. – Bryan Perry, 2014 Household Incomes Report – Key Findings. Ministry of Social Development (July 2014).

Now to the rub. If it is after housing costs child poverty that has risen in New Zealand and stayed high, as it has, the focus should be on what factors are driving up housing costs rather than what factors are driving down wages and incomes of ordinary worker. Before housing costs child poverty is no worse than it was 20 and 30 years ago – see figure 1.

New QV figures show Auckland house prices are up a massive 16.1% on last year, now estimated to reach $1m by Aug '16. http://t.co/DwAU79ozCy—

New Zealand Labour (@nzlabour) June 09, 2015

The cause of the large increase in housing costs and housing prices is abundantly clear. Restrictions on the supply of land that result from the Resource Management Act and policies made under that law such as the Auckland urban limit. That is the proper problem definition for public policy. Restrictions on land supply is driving up child poverty because more and more of the incomes of the poor is housing costs.

Source: Federal Reserve Bank of Dallas.

The most straightforward and fastest way of reducing child poverty and family poverty in New Zealand is lowering housing costs through deregulation of land supply.

Land supply deregulation is well within the realm of public policy choice. Parliament cannot legislate wage increases without accompanying productivity increases, but it can reduce restrictions on the supply of land as a result of the Resource Management Act.

Any discussion of child poverty and family poverty in New Zealand should refer to trends in both before and after housing cost in child poverty.

Will the Govt intervene in Auckland's housing crisis? Or will home ownership become a preserve of the wealthy? http://t.co/CK2AnCeuYB—

Green Party NZ (@NZGreens) February 05, 2015

A comparison of these diverging trends between before housing cost and after housing costs child poverty rates since 1982 gives a much clearer picture of what is increasing child poverty. The cause is housing costs as a result of ever tightening regulation on the supply of new urban land and in particular in Auckland at the behest of the middle-class voters courted by the Greens and Labour Party. It is the left-wing parties in New Zealand which opposed the most practical steps to reduce child poverty, which is land supply deregulation.