MSD’s annual release of the Material Wellbeing of New Zealand Households is a bit like Christmas for us here at The New Zealand Initiative. The compilation of statistics on poverty, inequality, incomes and everything-in-between is a fantastic contribution to the literature.
Given the range of measures used, it is disappointing when some organisations or commentators simply cherry pick the most depressing statistic they can find. That statistic is normally an After Housing Cost measure that shows inequality is increasing. We put out a press release today pointing out that what is normally cast as an inequality story is actually a story about unaffordable housing:
Shared growth, stable income inequality, but housing worries: latest MSD report on household incomes
Wellington (8 September 2016): Despite daily headlines of rising inequality, the latest figures from the Ministry of Social Development show broad and inclusive growth in household incomes and stable income inequality trends, says The New Zealand Initiative.
However, the figures also provide strong cause for concern about housing costs.
“The impact of higher housing costs is a key point in MSD’s updated statistics for 2015”, said Senior Fellow at the New Zealand Initiative, Dr Bryce Wilkinson.
“Contrary to the perception that the rich are getting richer and the poor are getting poorer, the report finds no evidence of any sustained rise or fall in household income inequality (before housing costs) in the last 10-15, 20, or 25 years, depending on the inequality measure.”
“But the report also compellingly demonstrates that rising housing costs are hitting those on the lowest incomes hardest.”
For the poorest quintile, housing costs rose from 29% of household income in the late 1980s to 54% in 2015.
Policy Analyst Jenesa Jeram also points to statistics in the report on Inclusive Growth.
“We often hear that economic growth does nothing to help the poor, and that the gains from income growth are not shared throughout society. However, according to the report’s ‘inclusive growth’ measure, household income growth rates have followed similar paths at the bottom, median and top since the early 1990s.”
Both housing and economic growth are core research topics for The New Zealand Initiative. Jenesa Jeram says “Alarmist reporting of poverty and inequality measures can lead to policies that come at the expense of economic growth. Meanwhile the real culprit, housing, remains an inadequately addressed policy problem.”
Dr Bryce Wilkinson and Jenesa Jeram are co-authors of a report on poverty earlier this year, and will be releasing a report on inequality in the coming months.
The Ministry of Social Development’s (MSD) ‘Household Incomes in New Zealand: Trends in indicators of inequality and hardship 1982-2015’ was released today. This annual compendium of income, material wellbeing, and inequality measures is a critical contribution to New Zealand’s evidence base.
You can read the Initiative’s reports on our website:
Poorly Understood: The state of poverty in New Zealand
The case for economic growth
Housing report series
That’s the short story. Here are some other bits in the MSD tome worth noting (all taken from the 2016 overview and key findings document):
First, why the Before Housing Cost measure should be interpreted with caution (and the AHC should be understood as such – the effect of housing costs):
BHC income (income before deducting housing costs):
- Household income from all household members from all sources after paying income tax gives an indication of the different levels of financial resources available to different households, all else being equal.
- But all else is not equal, as the diagram on the previous page makes clear. There are many factors other than current income that make a difference to the actual day-to-day living standards of households. For example, the largest item on the household budget for many households is accommodation costs, and yet for others in mortgage-free homes these costs are much lower. Accommodation costs cannot usually be changed in the short-term. To better compare the material wellbeing of households when using incomes the Incomes Report also uses household income after deducting housing costs (AHC incomes), especially for “poverty” measurement.
Incomes for the bottom decile (the poorest) should be treated with caution:
While the incomes of most of the households in the bottom decile seem plausible (for example, they are in line with main income support levels or the incomes received by households with workers on the minimum wage), there are always some that report implausibly low incomes, lower than beneficiary incomes or much less then declared spending, or both. A few self-employed report negative incomes. The bottom decile is unique in this regard. For example, while there are households in each income decile that report expenditure more than three times their income (around 2-3% of all households), around 80% of these are found in the bottom income decile.
On the surveys used to collect the data. I know this is an obvious point, but I’m not sure it registers with all commentators. The people counted as “the rich” or “the poor” change over time. Circumstances change:
The surveys are snapshots of different samples each survey, not a movie following the same people
Why New Zealand cares about the top 1%. Basically we’ve imported an inequality narrative from the US that doesn’t fit our current situation:
One of the reasons for the interest in what is happening with very high incomes is the fact that in the USA there has been considerable growth in the share of total income received by high income earners (see graph on previous page), while at the same time there has been little or no income rise for the bulk of the “middle class”. Neither of these factors apply in New Zealand: the trends for the top 1% and 0.5% shares are flat for New Zealand, and “middle class” income growth has been solid over the 20 years to 2015.
INCOMES ARE GROWING FOR EVERYONE. Incomes are growing in line with national income (Gross National Disposable Income). The Inclusuive Growth (IG) approach shows this (note the p90 and p20 refers to the 90th and 20th percentiles in the income distribution):
One of the motivations for the IG approach is the observation that for many countries in the years leading up to the GFC, the dividends of economic growth were not fairly shared across the whole income distribution. In particular in the US and the UK a small group of very high income earners vacuumed up the bulk of the new income coming from economic growth, leaving little or none for the rest to share.
The graphs below show one aspect of New Zealand’s IG experience from the mid 1990s to 2015 – the growth in real terms of household incomes (not equivalised) and Gross National Disposable Income per capita (GNDI pc). They show that:
o median disposable household income tracked very closely with GNDI pc, showing “inclusive growth” (left hand graph)
o the P20 and P90 incomes tracked close to the median(P50), thus showing that the “inclusive growth” extended to higher and lower incomes (right hand graph)
o average wages (after tax) fell behind GNDI pc growth, consistent with lowish productivity growth or higher returns to capital than to labour, or both (and see the point made below the graphs)
o in the post GFC years, average wage growth (after tax) has been only a little less than the growth in median household incomes and GNDI per capita.
Own emphasis added. p.17
There are no poor children, there are poor families:
“There are no poor children, just poor families”
It is sometimes said that the idea of “child poverty” doesn’t make sense as it’s really about families with financial and material resources that are not adequate for meeting the basic needs of the family (ie it’s not poor children, it’s poor families).
In this report, when it is said that “the child poverty rate on a given measure is 18%”, this is a short-hand for “18% of children live in families whose total income is below the threshold used in the given measure”. It is too cumbersome to repeat this each time, so the shorthand version is used: “the child poverty rate is 18%”.
The overlap between those who are income poor and those in material hardship:
The overlap between those identified as income poor and those identified as experiencing material hardship is nowhere near 100% – more like 40% overall for children when the low-income and high hardship groups are of similar size, though much higher for sole-parent families.
And that’s just from the Overview! There are so many more gems in the report, and I sure haven’t discovered them all yet. But given the comprehensiveness of the measures, and the warnings given about how to interpret them, I hope (but am not optimistic) that I won’t see an ‘Inequality rising and the government must do something now’ headline.
A ‘Lack of housing supply is screwing over the poor’ headline, however, I can deal with.