Do Romania and Singapore hold the key to helping us to get more Kiwis into their own home? These two nations currently boast the world’s highest rates of home ownership (Romania 96.4 per cent and Singapore 90.7 per cent), well above New Zealand. We have tracked at a consistent, but fairly average, home ownership rate of around 63 per cent for most of the past 100 years.
So surely we should be studying these two countries to find out their secrets and apply them here?
Not so fast. While these figures are certainly impressive, a little research demonstrates that we should be careful what we wish for. As is often the case, that which looks good at a distance turns out to be flawed on closer examination.
Let’s start with Romania. Prior to 1990 around 70 per cent of Romanian homes – largely apartments – were state owned. But with the end of Communist rule, the new Government began selling these off at very favourable prices (and, in some cases, even gifting them to tenants). As a result, almost 30 years on, Romania boasts the highest rate of home ownership on the planet, but not without significant social cost. Recently the World Bank described the Romanian rental market as virtually absent. This lack of rental accommodation has led to a severe overcrowding problem as multiple generations and extended families are forced to live together, in stark contrast to New Zealand where we have a steadily falling rate of number of people per home. Matching the Romanian model would mean reversing this by closing down the rental sector and forcing everyone to live with family or friends. Such a move would certainly boost our home ownership rates – but at what price?
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The World Bank also reported that a third of Romania’s housing is in disrepair, with structural issues, heating problems, and little protection against earthquakes – all issues that we can readily relate to here in New Zealand. But in Romania this is largely the result of lack of investment because home owners can’t afford the additional costs. In simplified terms, most Romanians achieved home ownership as a result of massive state subsidisation and ‘gifting’ (something advocated by some groups here) but were not ready to take responsibility for their decaying apartment blocks, nor had the financial, legal or social means to achieve it. This has contributed to a rapid deterioration of homes and a proliferation of poor homeowners living in unacceptable conditions.
By comparison, high home ownership in Singapore is very different. As recently as the 1950s most Singaporeans lived in slum-like overcrowded conditions, in unsafe buildings, with poor sanitation. That all changed in the 1960s with the establishment of the Housing Development Board and, by the 1980s 85 per cent owned homes. By 1990 home ownership had reached 90 per cent. Much of this was made possible by relaxing the withdrawal rules on the Central Provident Fund (the Singaporean equivalent of Kiwisaver), but commentators are now suggesting that this may have led to some people having inadequate funds for retirement.
In simplified terms, Singapore has achieved very high ownership levels by building scores of very large-scale apartment blocks in which the occupier owns the dwelling, but not the land, and by incentivising young Singaporeans to invest in a home as one of their first acts as an adult.
Are there lessons for New Zealand in the approaches taken by these two countries?
In respect of Romania, the answer is almost certainly no. The road to home ownership in this former Soviet state has no applicability to us here. The lesson of 30 years is that something which comes too easily isn’t likely to be treated with the same appreciation and care as something that comes from hard graft and sacrifice.
However, the Singaporean model bears closer scrutiny. While the prospect of dozens of very large apartment developments dotting the landscape challenges our traditional view of home ownership, it may be time to consider such a model.
Well designed apartments with long term and reasonably priced leases on the land component would make homes cheaper and give young people an opportunity to get onto the first rung of the property ladder. Such a programme would be a worthy purpose to reset KiwiBuild and would focus it on the part of the market where it is most required.
- Ashley Church is OneRoof’s property commentator. Email ashley@nzemail.com
