Who is the state really housing?
- Grant McLachlan
- 1 day ago
- 10 min read
How New Zealand’s great housing experiment turned from sheltering the poor to subsidising the people who profit from them.
In September 1937 the Prime Minister of New Zealand carried a dining table on his own shoulders through a cheering crowd and into the country’s first state house, at 12 Fife Lane in Miramar — a piece of theatre meant to show that the state was the servant of the people, not its master.
Nearly ninety years later, when the government moved in 2025 to raise the rents of its poorest tenants and pour the savings into a subsidy paid largely to private landlords, the Leader of the Opposition called it “a transfer from our lowest income renters to private sector landlords”.
Between those two images lies the whole strange history of social housing in this country. It began as the state stepping in where a failed market would not house people decently; it has arrived somewhere very different.
The question this piece tests is simple: has social housing quietly been turned from a tool for lifting the poor into a machine for enriching the people who house them?
Contents
The slums that shamed a country
New Zealand did not invent state housing out of idealism; it backed into it out of failure.
Through the late nineteenth century, cities grew on a largely hands-off, free-market model in which lanes and alleys were lined with flimsy, overcrowded cottages, rubbish and effluent festered, and the death toll from diseases such as typhoid climbed while little was done. In Wellington, reformers described the Te Aro, Aro Street, Thorndon and Newtown slums as not fit for any human being to exist in. Auckland’s inner suburbs, Ponsonby and Freeman’s Bay among them, told the same story.
The private market would not build decent homes the poor could afford, so the state was eventually forced to.
The first state houses
The first government to act was the Liberal administration of Richard Seddon, which in 1905 passed the Workers’ Dwellings Act to lift urban workers out of the slums and away from grasping landlords.
The first houses went up at Petone, chosen for its clean air and large sections, and they were built deliberately well — architect-designed cottages that would not become slums in turn. That was also their undoing: high standards made them expensive, rents ran to about a third of a worker’s wage, and the people they were meant for could not afford them. Several hundred were built before the scheme stalled — an early lesson that quality housing for the poor cannot be left to pay for itself.
A quake, a depression, and a builder
Two shocks reset the building industry before state housing’s great leap.
The Great Depression gutted construction and threw tradespeople out of work. Then, at 10.47am on 3 February 1931, the Hawke’s Bay earthquake levelled Napier and Hastings and killed at least 256 people — still the country’s deadliest disaster.
The rebuild rewrote building regulations and remade central Napier in the Art Deco style now famous worldwide, a turning point in how New Zealand thought about safe, standardised construction.
Out of the Depression rose a builder who would dominate the century: James Fletcher, whose firm survived the lean years on big public works and whose founder cultivated friendships with Labour’s Peter Fraser and Walter Nash on the overnight express.
When Labour wanted houses built fast, it knew whom to call.
Savage and the table
Elected in 1935, the first Labour government argued that only the state could end the housing shortage, and under John A. Lee it launched the largest construction scheme in the nation’s history, planning 5,000 rental homes.
Fletcher Construction won contracts to build about half of the first 400 houses. The first finished was 12 Fife Lane, opened in September 1937; its tenant, a tram driver, paid just over a third of his wage in rent.
The popular memory is that state housing made Fletcher’s fortune. The truth is subtler: the firm initially lost money on the contracts and was saved only by a government-guaranteed overdraft. But the partnership — and the wartime and post-war public works that followed — turned Fletcher into one of the country’s largest companies.
Public money built a private empire.
A house in every street
The houses themselves carried a philosophy.
State houses were built from around 400 different plans so that no two in a row looked alike: solid cottages with hipped tile roofs and brick veneer, built to a standard so high that buyers now seek out ex-state houses.
Just as important was where they went. The ideal was a blend of state and private homes scattered through ordinary suburbs, so that tenants were not herded into the ghettos Seddon and Savage wanted to avoid. A working community, the thinking went, needed its labourers and its teachers, its nurses and its tradespeople living side by side — and decent housing set the floor under all of them.
Every street was meant to hold a mix of families, so that no suburb became a ghetto and none a gated preserve.
The other landlord
Central government was never the only public landlord.
City councils had built rental housing since 1916, and over time they came to specialise in the single and elderly people the family-focused state scheme excluded — Christchurch opening the country’s first pensioner flats in 1938. Wellington passed its own City Housing Act in 1939, and its flats took in those who fell through the gaps — single men back from the war with untreated trauma, and elderly widows judged ineligible for a state house.
Driven from 1962 by councillor George Porter, the council built complexes such as the Central Park Flats, the largest of their kind in the country when they opened in 1969, until by the mid-1970s it ran some 2,300 units and was the nation’s second-largest social landlord after the state itself. The arrangement held until 2023, when Wellington handed its tenancies to a community housing provider, Te Toi Mahana — the same outsourcing logic now reshaping social housing nationwide.
The politics of the section
The ideal frayed almost as soon as it scaled up.
As mass suburbs rose at Porirua and in South Auckland through the 1950s and 1960s, the promised blend gave way to concentration, and cheaper, more uniform designs produced the very estates the founders had feared.
State housing also hardened into a party fault line: in general National governments encouraged tenants to buy while Labour conserved the stock.
During the First Past the Post era, a tit-for-tat pattern emerged. National would concentrate state housing in safe Labour-held seats, whereas Labour would counter with scattering social housing throughout marginally-held National Party seats. As Labour's orginal goal was to have state housing in every street, National's pattern was described as politicking.
Whether houses were ever sited or sold to engineer particular seats is far harder to prove — that stronger claim belongs more to political folklore than to the record — but the suspicion has never died.
As recently as 2020, NZ First’s Ron Mark said of the Wairarapa, whose stock was sold off in the 1990s, that the houses “were all sold off. And it’s not a coincidence.”
When capital fled to bricks
To understand what came next, follow the money.
On Black Tuesday, 20 October 1987, the New Zealand sharemarket lost $5.7 billion in four hours; by early 1988 it had fallen almost 60 per cent and, on a capital basis, has arguably never recovered. Nowhere in the developed world was hit harder, and the scar proved permanent: a generation of investors turned away from shares and poured their savings into property.
Each later tremor — the Asian financial crisis, the dot-com bust, and above all the collapse of dozens of finance companies between 2006 and 2012, which cost 150,000–200,000 depositors more than $3 billion — only deepened the conviction that bricks and mortar were the only safe bet.
With no comprehensive capital gains tax on investment property, untaxed gains and cheap debt did the rest. A property-industrial complex was born — and the state would soon learn to feed it.
The turn to the market
The neoliberal era turned the founders’ logic inside out.
In Ruth Richardson’s 1991 budget, National broke the consensus that the state should subsidise state rents directly: from 1993 tenants would pay full market rents, cushioned by a new accommodation supplement paid to public and private renters alike.
National argued this treated all tenants equally. For people like Val Wilson it meant paying nearly 300 per cent more for the same flat. Then the houses themselves were sold: state stock fell from 69,000 in 1993 to 59,300 by 2000.
The market the state had once corrected was now its landlord of choice.
The ladder pulled up
The state did not only build homes; for most of the century it helped people buy them.
From 95 per cent State Advances loans in the 1920s — which by the end of that decade were financing nearly half of all new houses — to cheap post-war mortgages and, from 1958, the right to capitalise the family benefit into a deposit, ownership was actively underwritten.
It worked: home ownership peaked at 73.8 per cent in 1991.
Then the props were removed — the family benefit abolished in 1991, state lending wound up across the decade — and ownership fell to 64.8 per cent by 2013, the lowest since 1951, with most new houses built large and for high earners. A nation of owners was quietly becoming a nation of renters.
Planning choices deepened the shift. The old quarter-acre section, much mocked, was efficient: it let roads, water and sewer lines run in cheap straight lines, and its lawns and gardens soaked up stormwater that pipes now must carry.
As I have described before, selling state houses in well-off suburbs and shrinking lot sizes pushed lower-income workers to the fringe — lengthening commutes and clogging roads — while lifting the price of land by the square metre and helping leave councils facing a $120–$185 billion three-waters bill as denser housing strained ageing pipes and minimum parking requirements were scrapped.
Many planners argue the reverse — that enabling density is the only route back to affordability — but on either account, the cheap, owner-occupied section that built the middle class is gone.
The upgrade years
From 1999 a Labour-led government reversed course.
During the Mixed Member Proportional (MMP) transition, it no longer mattered what electorate a voter lived in. It only mattered who voters gave their party vote. Labour re-focused state housing on need, rather than where they lived.
It reinstated income-related rents, capping them at a quarter of a tenant’s income; it modernised and insulated ageing houses and ran community-renewal programmes; and it built around 6,000 new state houses.
Labour also pioneered partnership rather than retreat: at Hobsonville Point, launched under the Clark government in 2005, a Housing New Zealand subsidiary master-planned a whole suburb with private builders — mixed-density homes delivered at a scale no ordinary developer could match.
Hobsonville was a former air force base, made surplus by the Clark government so a mega-yacht building facility could be built. But under Public Works Act provisions, the land was sold back to the previous farmers, who had already signed a deal with the mega-yacht company, who then wanted to develop the rest of the land for housing.
Effectively, what resulted was the government selling surplus land cheap to developers, who then built intensive housing, including some social housing.
Learning from Hobsonville, the government developed partnerships with community organisations and developers.
For a decade, the state was again building communities rather than selling them.
A quake, a recession, and a woodwork teacher
Eighty years after Napier, the pattern repeated on a far larger canvas.
The Canterbury earthquakes of 2010 and 2011 — the second of which, on 22 February 2011, killed 185 people — struck a country still in the grip of the post-GFC recession, and the rebuild became, in John Key’s words, the largest and most complex single economic project in the nation’s history, put at around $40 billion.
The man given charge of it was the MP for Ilam and former woodwork teacher Gerry Brownlee, whose Canterbury Earthquake Recovery Authority wielded all but unprecedented powers to override councils, rezone land and order demolitions.
The state did almost everything at once:
It red-zoned and bought out nearly 8,000 properties for about $1.7 billion;
It bailed out the collapsed insurer AMI at an eventual cost to taxpayers of about $1.48 billion;
It handed the firm that built the first state houses the contract to repair more than 67,000 homes for $2.96 billion; and
It poured money into anchor projects including the $475 million Te Pae convention centre and a $683 million stadium.
Housing the rebuild’s army of workers against a shrunken stock drove rents up 36 per cent in five years and kept the rental market humming for landlords.
Napier had rebuilt its commercial heart in barely two years; Christchurch’s stadium opened in 2026, fifteen years after the quake.
And where insurance money and uncontestable contracts flowed, a culture grew.
As I documented, the rebuild pumped insurance money and uncontestable contracts into a city, and from it emerged a class of young developers who traded donations and ministerial selfies for access — with a throughline running from Brownlee’s office to the ministers who would later design the fast-track regime.
The disaster did not just rebuild a city; it built a network.
The developer’s friend
Under National from 2008 the direction of state housing reversed again, and the cost of housing the poor migrated ever further onto the private market.
In 2015 John Key announced plans to sell up to 2,000 state houses to community providers at less than market value and to shrink the state’s holdings. Today the accommodation supplement pays out $2.34 billion a year to 364,000 households, much of it flowing to private landlords.
University of Auckland research finds signs that landlords capture part of the subsidy through higher rents, though economists disagree on how much. Meanwhile the government’s 2024 fast-track regime has been shadowed by donations: entities linked to fast-track projects have given more than $1 million to National and NZ First since 2022, against $8,620 to Labour. Ministers say the conflicts were managed and disclosed, and that they stood aside where needed.
Billions that began as help for poor tenants now underwrite the incomes of the people who house them.
None of this makes private landlords villains. They provide the great majority of the country’s rentals and the state could not rehouse everyone overnight.
But the pattern is hard to miss.
The first Labour government tried to shift wealth from the comfortable to the poor by building them homes. The settlement we have now does something closer to the reverse: it taxes the gains of property lightly, subsidises the rents that flow to its owners, and fast-tracks the developments that enrich them — while the poorest tenants are asked to pay more. The poor, as ever, are the counters on the board.
Savage carried a table into a worker's home to show a state that helped the poor. Nearly a century on, it helps their landlords instead — at the expense of the poor, and the taxpayer.
