Crampton on child poverty
Eric Crampton writes at Interest:
Prime Minister John Key signalled last week that child poverty is to be one of his priorities for the coming term. Too many children in New Zealand grow up in families with very little disposable income. Poverty has traditionally been an issue captured by the political left, with demands for more redistribution to solve the problem. Inequality too has captured a fair bit of attention, despite strong evidence that income inequality has not really changed much since a rise in the late 1980s and early 1990s: the trend has been flat for two decades.
Even more surprisingly, data from the Ministry of Social Development shows that real household income growth in the lowest deciles has been very strong, both from 1994 to 2013, and from 2004 to 2013. The poorest decile in 2013 has real household income 40% higher than the poorest decile in 1994. And from 2004 through 2013, real household income growth was strongest for the lowest four deciles than for the richest six deciles.
Inconvenient data!
So why has poverty, and especially child poverty, seemed so much more pressing?
The Ministry of Social Development data, cited above, measures real household incomes before housing costs. And housing costs have been rising. MSD reports that 23% of children aged 0-17 live in the poorest quintile of households (the bottom 20%): they’re slightly over-represented, when disposable household income is counted before housing costs. But when we take incomes after housing costs, 27% of children live in the poorest quintile: high housing costs disproportionately affect poorer children. Forty-two percent of households in the poorest quintile spend more than 30% of their income on housing; only 9% of the richest quintile do.
While child poverty is lower than it was in the early 1990s (even after housing costs) and child poverty rates are now back to levels comparable to those prior to the Great Financial Crisis, they remain substantially higher than they were in the 1980s. Housing costs substantially affect disposable incomes at the bottom of the distribution.
Housing unaffordability is consequently a substantial part of New Zealand’s child poverty problem. When poor households have to spend 30%, 40%, or even 50% of their incomes on housing, there simply is not much left to pay for anything else. And so spots of bad luck, like a car breakdown or an unexpected expense, can quickly become major issues.