The Liberal government’s venture into housing provision, while unsuccessful, provided the basic model for later state intervention in the housing market. This involved two major forms of housing assistance:
- the erection of state rental houses (direct assistance)
- the state funding of private housing (indirect assistance).
Government housing assistance might be represented by two circles: the first is state rental housing provision, and the second is state finance for private housing. The circles grow or shrink in relation to government resourcing. Historically, Labour governments have enlarged the first circle; National governments, the second. Sometimes the circles have intersected, such as when governments have lent money to individuals to purchase state houses.
During the 1920s the government promoted indirect assistance through 95% loans from the State Advances Department for suburban homes. New bungalows sprang up across former fields as home buyers rushed to realise the dream of home ownership. By the end of the decade the state was financing nearly half of all new homes being built in New Zealand.
The main exception to state-sponsored private housing was railway housing. The Railways Department had provided rental houses for some of its workers since the 1880s, but increased provision in the 1920s to meet growing demand. Houses were prefabricated in its factory in Frankton, near Hamilton, and were assembled on site. The department built streets of railway houses in Hamilton and Wellington. Small settlements of railway houses straddled the North Island main trunk railway line.
The 1930s economic depression burst the suburban housing bubble. Lenders foreclosed on mortgage defaulters, forcing many back to renting the decrepit inner-city dwellings they had recently left. With new house building at a standstill, overcrowding in the main cities became acute. The coalition government believed private enterprise would solve the problem, but in 1935 it began lending on new homes again. By then the government was deeply unpopular and was voted out of office in November.
The new Labour government, elected in 1935, blamed the housing shortage on market failure and argued that only the state was able to fix the shortage. In 1936 it drew up plans to use private enterprise to build 5,000 state rental houses across New Zealand – a return to direct housing assistance. A new Department of Housing Construction would oversee building and the State Advances, now a corporation, would manage the houses. The initiative formed part of a wider plan to slash unemployment and stimulate the economy. The scheme would:
- give the jobless a trade
- boost manufacturing industries
- raise New Zealand housing standards
- give tenants a security of tenure equal to home ownership.
Too much fuss
The opening of the first state house, where Prime Minister Michael Joseph Savage carried furniture into the new home, remains a famous image. Less well known is the tenants’ reaction to the opening fuss. After hosting not only the prime minister but 300 others – muddying floors and leaving finger-marks on fixtures – house-proud Mary McGregor ordered all guests to leave. The family nonetheless had to endure streams of visitors peering through their windows for days afterwards.
Labour’s programme was aimed at low- to middle-income nuclear families – partly to encourage breeding. Rents were set on a cost-recovery basis, which priced state houses beyond the reach of the poor. (At the same time Labour strengthened existing rent controls to benefit the poor.) Typical of state-house families were the McGregors of Wellington: two adults and two children – a boy and a girl – who moved into the first state house in suburban Miramar in September 1937.
By 1939 state houses were being completed at a rate of 57 each week, and there were 10,000 applicants on the state-house waiting list. The Second World War halted building until 1944, after which whole suburbs were constructed. This included the (garden-city inspired) suburb of Naenae, in Lower Hutt. It was built around a shopping centre, designed to foster social bonding and community life.
During the 1930s state housing assistance to Māori largely comprised loans to build houses on ancestral rural land. The increasing rate of Māori urbanisation after the Second World War led the government to admit Māori into state housing in 1948. Māori families were placed (or ‘pepper-potted’) into Pākehā neighbourhoods to encourage their assimilation into mainstream society.
At the end of the 1940s there was a backlash against state housing. Rents were now covering only half the cost of new state houses – that meant that middle-income state housing tenants received hefty subsidies, while the poor, who could not afford to rent state houses, paid market rates for private rentals of lower quality. Labour said that raising rents would breach its security-of-tenure promise, but the wider public saw the situation as warped and unfair. During the 1949 general election the National Party exploited this discontent by promising to reform the system and provide tenants with the opportunity to buy their state houses. It won in a landslide.