We're going to need just about every one of the housing policies being thrown around at the moment because any big fix is going to be down to lots of small change... and it's going nuts out there

Forget love, real estate is the new battlefield. And now just between the main political parties. The stories from the Auckland warzone are enough to leave you shell-shocked, and I've got two stories from this weekend as evidence.

The house next door to ours has just gone on the market and had its first open home on Saturday. Naturally, we popped over for a gander. We're on an almost-full site, they're on a half site. And our square metreage is half theirs again, though we have the same number of bedrooms. Then again, the house next door is much newer and in better nick than ours. Both back onto a park which is, officially, in Remuera but in reality is in St John's.

The agent could have knocked me over with a flyer when he told me the owners had turned down an offer of $1.1 million last week. If our house is now worth something similar, I would have made significantly more in capital gain in the three years we've been there than I have by going to work every day.

That is just wrong.

Some friends went with a young couple to an auction for a 2.5 bedroom house in Waterview, which not that long ago was a starter suburb. With a GV of $510,000, it sold for $910,000. A baby-boomer couple blew the Gen-Xers out of the water.

So when the economists talk about another "Auckland bubble", they've got a point.

With these kind of prices being paid on the eastern and western fringes of central Auckland, it's hardly surprising that people are turning to our political leaders to see what they might do about it. And this weekend National answered the critics who have been saying they're not doing enough with some new housing policy.

The household income cap on KiwiSaver's first home deposit scheme has been lifted from $100,000 p.a. to $120,000 p.a. and the house price cap has risen from $400,000 to $485,000 in Auckland, and by smaller amounts in some other centres. National hopes that will help roughly a further 6500 first-time buyers into homes each year.

Meh. It's hardly a silver bullet, but then Bill English has been saying for years that "there is no silver bullet". At least, he says that when he takes his politics hat off.

Just two weeks ago Bill English told TVNZ Labour's promise to ban non-residents buying houses here was:

"Messing around with tiny groups of buyers won’t make any difference to the bubble..."

Well, if Labour's ban is messing round with tiny groups of buyers (and it essentially is), then National's KiwiSaver and Welcome Home package is just focusing on another small group. Both got the headlines, but they're bit parts in a big and complex production.

Labour's policy takes maybe four percent of the buyers out of the market. Which ain't nothin', but ain't much either. The under-played part of the policy is that non-residents who like our capital gains can build houses here -- and building more houses is a much bigger part of the solution.

Problem: It's all based on anecdotal evidence (from the BNZ-REINZ report) and reeks of the race card.

National's policy, by contrast, adds demand to the property market when there's already too much and makes it easier for young people to take on debt when borrowing is cheap and house prices high - super risky. At least it now requires them to have a deposit though!

The good part is that it targets first-home buyers and encourages builders to construct smaller homes in the under-$500,000 range. But is that just a pipe dream? Developers have told me that most of the interest remains in building 200 sqm McMansions - there's still plenty of demand for them, the work suits our small scale building firms, the margins are better, and it's easier to get a consent for one or two of those than it is for the volume of more affordable houses needed to make as much money.

The most serious downside of National's policy is that it undermines the point of both KiwiSaver and English's efforts since the recession to get our household debt down. He used to pride himself on encouraging more household saving and driving more funds into the productive sector. KiwiSaver, remember, was a way to create a separate saving pool that wasn't tied up in property; retirement savings that could boost the rest of the economy. Now he's telling young couples to just pour their savings into bricks and mortar again. Plus ca change etc.

Yet while the parties attack each other, the dirty secret is that everyone agrees a whole bunch of stuff has to be done on both the demand and supply side. The truth is that this is an "all of the above" problem, including a capital gains tax, more land and lots more houses.

But there are a few other policy ideas that seem to me worthy of discussion, and I'd like your thoughts because I don't know nearly enough to pass judgment.

One is the return of the post-war low interest loans that stimulated so much home building -- and ownership. Sure, they created urban sprawl and cost the government a fair whack. But they got a huge number of people into their own home. What's more, one of the biggest threats today is that those buying over-priced homes at a stretch -- when interests rates are at long-term lows and due to start rising in the next 12 months -- will start falling over in serious numbers. Would a government-guaranteed loan for low income buyers help boost home ownership or just bankrupt the government?

The other idea is to do something about the tax incentives around rental properties. English gave a nod in that direction in National's first term, but didn't go nearly far enough. Isn't it time to cut right into all the tax advantages that make rental properties such a great investment? Not just the lack of a capital gains tax, but all the other bits as well?

The third stems from the likes of Gareth Morgan, who says the Reserve Bank encourages banks to prefer home lending over all other kinds of lending. Should we be allowing people to borrow more to invest in the productive sector, rather than just bricks and mortar?

Let me know what you think.

Comments (27)

by Keir on August 12, 2013
Keir

Hang on. Everyone agrees a CGT is needed, except National. And oh look! As well the CGT, Labour has this bold policy of "building lots of cheap homes and selling them cheaply". And yet you could read this blog post, and the only Labour policy you'd know about would the ban on non-resident ownership. Is it any wonder Labour goes for the cheap shot when this is the state of the discussion?

by Lee Churchman on August 12, 2013
Lee Churchman

baby-boomers

Isn't that the problem right there? You can build as many new houses as you like, and younger people will stil get bid is up to ridiculous lengths  by older folks wanting investment properties. I can't see any party doing anything to seriously cross that demographic to be honest. 

by Matthew Percival on August 13, 2013
Matthew Percival

Hang on. Everyone agrees a CGT is needed, except National. And oh look! As well the CGT, Labour has this bold policy of "building lots of cheap homes and selling them cheaply". And yet you could read this blog post, and the only Labour policy you'd know about would the ban on non-resident ownership. Is it any wonder Labour goes for the cheap shot when this is the state of the discussion?


I will point out that Labour's version of the capital gain's tax is quite different to a comprehensive capital gains tax. I will also point out many countries that have a comprehensive Capital Gains Tax have also endured housing bubbles.

There is a great deal of conjecture as to whether Labour can make good on it's promise of 100,000 homes in 10 years. With the Christchurch rebuild where is the labour going to come from? Where is the land they are going to build 100,000 homes on?

Tim, I largely agree with your thoughts on Nationals first home buyer policy announcement. There can only be one result to giving buyers more purchasing power and that is prices will go up.

We need to be careful with policies we implement. They need to work in the long-term. Policies to make rentals even less enticing could result in rentals being sold. Whilst that might be a good thing for home buyers a reduction in the supply of rental property could force prices up in the rental market. That would not be counterproductive as it would create a barrier for renters to save up a deposit to purchase a house.

You would think with record high house prices and record low interest rates that property developers would be building new developments left, right and center. There are some new developments going up but not to the extent that the market conditions command. We need to look at the underlying reasons why i.e. Land availability, consent process, RMA and adjust those rather than tinkering around the edges with tax changes and buyer incentives.

by Tim Watkin on August 13, 2013
Tim Watkin

@Keir - the post wasn't designed as a list of all policies. I was making the comparison of the two newest policies from the main parties and pointing out that they're quite similar in that they're marginal, but different in other ways. A CGT, which we all know about, would be another good step, but it too is only one part of the puzzle. As Matthew points out, on its own it won't save us from bubbles. But what Matthew doesn't mention is that, put together with these other policies, it's likely to take some heat out of the market.

And I don't think Labour and the Greens are "everyone".

by Tim Watkin on August 13, 2013
Tim Watkin

Lee, you've hit the nail on the head. Well, one nail at least. As I say, there are so many aspects you need to address to improve housing affordability. But discouraging housing as an investment is one of them. What do you think of changing the tax advantages -- no-one seems to want to tackle those and risk the ire of boomers. But surely you could at least shut them down for any future buyers and grandfather others out.

That would deal with your concern Matthew, that we'd suddenly have fewer rentals. Long-term mums and dads might own fewer rental properties, but then perhaps more would be owned by professional agents who offer more security of tenure and are better landlords.

Matthew, I don't have much faith in the housing market. Even English has conceded it's not working like a market should. Go figure! Hence Labour's right to drive a building programme rather than just open up land. Oh, and we can't afford sprawl so someone has to hold the market's hand on this one.

by Tom Semmens on August 13, 2013
Tom Semmens

The two elephants in the room are 1) the lending policies of the main retail banks, which will continue to pump money into the mortgage market as long as people continue to make the repayments. When you've to much money in the market, price inflation is inevitable and 2) anything that actually did drop house prices would see a whole lot of the entitled middle class in sewrious financial trouble. And seeing how angry that group gets at the idea of having their entitlement to pillage the snapper fishery pillaged, imagine how angry they'll be if they think they might go broke.  

Really, the whole housing debacle is an obvious failure of the free market, but as the Chinese pointed out we are so wedded to blinkered laissez faire capitalism we just can't see it.

I would:

Give the Reserve bank the power to adjust a stamp duty rate to eye watering levels if necessary.

Introduce a CGT without excemptions.

Re-introduce low interest state advances loans (and strip the largely Australian owned banks of much of their mortgage lending business - yes, I know, good luck getting that past CER, or whatever other free trade protocols the government has signed us up to that we don't now about) to control the flow of money into housing and offer low interest loans.

Come up with some sort of regional development plan, because we all know this is really just an Auckland problem and if you create jobs in the regions, people will move there.

Undertake a massive state housing program in Auckland that includes high quality apartments and townhouses built around brown field PT hubs, and ensure that they are not just state rentals but people also have rent-to-buy, buy outright and lease options.

So yeah - good luck finding a politician willing to take on the over-entitled middle class, the Aussie retail banks and the entire neo-liberal commentariat...

by Lee Churchman on August 13, 2013
Lee Churchman

What do you think of changing the tax advantages -- no-one seems to want to tackle those and risk the ire of boomers. But surely you could at least shut them down for any future buyers and grandfather others out.

My guess is that it would turn out like Working for Families. Part of what makes that policy politically workable is that it allows a lot of people (mostly business owners) to rort the system by hiding their income. Most people would be surprised at who gets a full whack of WFF, if they didn't already know how to rort it. Given that any such policy would have to exempt first home buyers, there would be an army of accountants looking for similar ways to game the new rules (creating new trusts, etc.).  

Even then, if we could sort out all the problems, I'm not sure that such a policy would be a vote winner. Wasn't it Sid Holland who wanted to create "a nation of little capitalists"? I may be wrong, but it seems like his wish has come true in that a great many people have become more wealth oriented than income oriented in that their preferred mode of existence is that of the rentier. This attitude seems more prevalent among the students I teach than it used to be. It used to be that education led to a profession that led to income, but now it's education leads to a profession that enables one to invest in property and then live off of rents at least partly or wholly. There also seems to be a significant number of people who lack formal educational qualifications, and who've bought into the same ideal, so it's a cross class thing. 

Seems to me that an awful lot of people have similar views - at least enough that added to other conservative constituencies, National is riding very high in the polls. It seems grotesquely unfair to me that working people are priced out of the housing market and forced to rent (full disclosure: I own a very modest house, but had a big deposit due to working overseas, which is not an option for many due to type of employment, salaries, etc.). But there seems to be at least half the country that has no problems at all with this.

Similarly, most people I know find this government to be worryingly authoritarian, but apparently many people don't care at all because it won't affect them. Same goes with real estate. Egalitarianism has been a dead duck in NZ for a long time, but I'm quite surprised to see that fairness appears to be well on the way out as well (fairness in the Rawlsian sense). I would have thought this to be a fundamental NZ value shared by all, and it did used to be.

Anyway, enough rambling. 

by Matthew Percival on August 13, 2013
Matthew Percival

Just to comment on a few inaccuracies.

A CGT, which we all know about, would be another good step, but it too is only one part of the puzzle.

by Matthew Percival on August 13, 2013
Matthew Percival

What the - the rest of my post has disappeared

by Tim Watkin on August 13, 2013
Tim Watkin

Quite an agenda Tom! Some sort of stamp duty - just for speculators and foreigners? With CGT for all on top of that you'd drive lots of people away from home ownership. Most people want to resurrect our falling ownership rates! It's still a good form of retirement saving and buys you into society in a positive way, doesn't it?

Regional development crucial though... and isn't the argument against cheap state advances loans that you'd lose control of money into housing as people would snap them up? Although on one hand you're pushing people away from homes, on the other making it cheaper... 

by Tim Watkin on August 13, 2013
Tim Watkin

Lee, I've got no hard numbers but don't imagine there are many working-age people living off rental income alone. Most rental property owners are invested in one or two others to boost low incomes or save for retirement, I'd have thought. So it's not a major trend or generational swing as you seem to be saying - if you're saying that?

As for tax changes, I'm talking about taking the bonuses OUT of the system, not opening more loopholes.

 

by Tim Watkin on August 13, 2013
Tim Watkin

Sorry Matthew! Try again?

by Keir on August 13, 2013
Keir

Wait, what Tim? You wrote a comparison of two housing policies that entirely ignored the massive elephant in the room that is the fact Labour has one, and National doesn't, and you justify it on the grounds that Kiwibuild's almost a year old now, so, you know, bo-ring?

 

The entire tenor of the comparison is: look, two marginal policies! Who's going to tackle the big issues? And I agree the policy on non-residents is super marginal! It's a marginal addition to a massive package that does tackle the big issues. The kiwisaver policy isn't. But the reader would have no idea about that based on your article. I mean, really, it's an exercise in creating a massive false equivalence. 

by BeShakey on August 13, 2013
BeShakey

Introducing minimum standards for rental properties seems like it would have multiple benefits. It'd make it easier for people who want decent accommodation to stay out of the market when it overheats, it might drive some low quality landlords out of the market, and it'd have a bunch of health benefits. With a clear policy and a reasonable lead time the effect on current renters shouldn't be excessive and it'd be possible to provide some additional support to those on low incomes who might find their rent go up (you'd need some pretty decent monitoring to ensure landlords didn't use it as an excuse to get more $).

At the moment it seems like lots of people feel like the only way to settle down, have kids and generally be an 'adult' is to buy a house. Staying out of the market is hard because the rental stock is so crap.

by Tom Semmens on August 13, 2013
Tom Semmens

"... Some sort of stamp duty - just for speculators and foreigners..?"

The stamp duty would be variable, much like the cash rate, and used as a tool to dampen the housing market if necessary.

"...Most people want to resurrect our falling ownership rates! It's still a good form of retirement saving and buys you into society in a positive way, doesn't it..?"

Actually I think the states sole role is to provide a house that is to be a home, not fund one way speculative bets for peoples retirement. We've locked up billions in unproductive homes and mortgage loans whilst industry screams for the investment that superannuation funds (for example) could provide.

"...Although on one hand you're pushing people away from homes, on the other making it cheaper..."

See my comment above - I want the state to fund homes, not fuel property speculation. Cheap state advances loans might only be available for state built houses, for example. Personally, when it comes to first home buyers I don't see any role for the private sector at all - the government can build them using economies of scale and lend to the buyers using state advances. And when I say "homes" in Auckland region at least that would include family sized apartments and terraced housing around planned transport and recreational hubs. And as I said - the government building program would be for mixed ownership, a majority of mortgaged owner-occupiers plus a pepper potting of rent to own, leased and rental apartments and terraced housing within a planned community with links to good public transport and shared green spaces.

by Lee Churchman on August 13, 2013
Lee Churchman

So it's not a major trend or generational swing as you seem to be saying - if you're saying that?

Well sort of. I mean that the aim of lots of people to have investment homes is at odds with the aim for every New Zealander to be able to own their own home if they so wish. It seems to me from my experience that the former is much more popular than it used to be, and so that makes many more people who have a stake in the present, blatantly unfair, situation where working families are permanently locked out of home ownership in order to fund someone else's lifestyle – and a lot of NZ seems just fine with that. Full disclosure: I only returned to NZ a few years ago after a decade abroad, and the changes in attitudes to real estate still seem bonkers to me, as does the explosion of property porn in the media.

Mind you, I know quite a few people who either own many investment homes or are planning to do so and retire early. Must just be folks I know. 

Roger on the tax thing, though.

by John Caldwell on August 14, 2013
John Caldwell

A stable population is the only way to tackle housing affordability.  It is simple supply and demand.  We live on an island so we have to start thinking like island dwellers.  Immigration levels should be adjusted on a quarterly basis to achieve population stability.   

by Ross on August 14, 2013
Ross

With a GV of $510,000, it sold for $910,000.

GVs are useless when looking at the market value of a property. It irritates me to see them used to market a property (unless they happen to be a good guide to market value) or sales figures.

by Alan Johnstone on August 14, 2013
Alan Johnstone

This whole discussion is predicated on the idea that both major parties want to improve hosuing affordability and tackle the current high prices.

They don't. Sure they want to look like they are trying, but actually do it? No.

Ask a homeowner if they think it should be cheaper for first time buyers adn they'll say yes, ask if they want the value of their homes to fall in order for this to be true and most will say no. It economic nimbyism.

Anyone like to take a guess where the most votes are ?

No party is going to have a policy that exposes people to negative equity, it's politically toxic.

 

by william blake on August 14, 2013
william blake

 "ask if they want the value of their homes to fall in order for this to be true"

Allan you mean house here rather than home. I have been building a home for a few years now as it is the only way I can afford to own one. Its market value has been creeping up steadily, I don't care as I don't want to sell and I don't want a big loan, if its (market) value falls I still have a place to sleep and read and eat.

The debate seems to conflate issues of home owning and house trading and obviously the latter is the dominant behaviour. 

I agree with Tom Semmens CGT with no exceptions.

by Alan Johnstone on August 15, 2013
Alan Johnstone

If its market value falls, thats fine as long as you can service the debt on it  if you cant you have a big problem.

Any policy that causes house prices to fall in real terms is political posion. Placing people into even notional debt will upset them.

 

by stuart munro on August 15, 2013
stuart munro

Given that the housing bubble is caused by bank's enthusiasm for the security of residential property, the obvious area for reform is in bank access to that market.

A number of mechanisms would be possible:

  • capital to lending requirements for market entry
  • banks paying tax in the country of the mortgage
  • a regulated maximum fraction of residential lending to other lending

These mechanisms would have little impact on consumers, and would not drive up prices, but they would contain bank motivation for creating bubbles. To date none of the suggestions from major parties seem to have considered that angle.

by Lee Churchman on August 15, 2013
Lee Churchman

No party is going to have a policy that exposes people to negative equity, it's politically toxic.

Yep.

Of course the alternative, where young, working people give up on home ownership is also toxic in a different way. It's a fundamentally bad idea to have a large group of younger people who don't feel much of a stake in society. 

by Tim Watkin on August 16, 2013
Tim Watkin

@Shakey, I think that's a really important point. Security of tenure would also be vital in reforming the rental sector. And while you call for "monitoring", I don't see how you'd stop some price gouging. And rents will go up as a result, whatever you try to do to minimise. But worth it in the long-run?

@ John. Thanks for your comment... But I couldn't disagree more! We have all sorts of other problmes best addressed by population growth. We have skill shortages, shrinking provinces, and we lack a domestic market large enough for SMEs to grow and get capital before competing with the world... and even in housing, if we don't import builders and others we simply can't build enough houses in Auckland and Christchurch to meet existing demand.

 

by Tim Watkin on August 16, 2013
Tim Watkin

You're going too far for me Tom. You can't take stop first-home buyers buying from the private sector and not all home-ownership is speculation. Yes, we tie up too much money in unprocdctive homes. But if we went all the other way, imagine the impact every time the markets fall. We need to spread, but not abandon bricks and mortar altogether – it's a stable, understandable and profitable investment. Millions of Kiwis have built their retirement on their homes – and the sort of change you suggest would surely make prices plummet.

by Tim Watkin on August 16, 2013
Tim Watkin

Alan, you're bang on politically. But to be fair, there's also good economic reason for people not to want to lose their shirts if house prices fell. Not to mention the impact a slump would have on the wider economy.

The goal surely is some middle ground where prices stabilise, maybe come back a little, and we find other ways of helping first-home buyers. You're not actually arguing for a slump are you?

In Auckland, for example, there are more "afforable" houses around $300,000 in Mangere and Otahuhu. Maybe we just need to gentrify, offer better public transport and services, and (deal with people's racism!). And on the other side we need to get wages up so people can afford the costs...

Also, what do you think of Labour's chances of building homes in Auckland for $300,000?

by DeepRed on August 18, 2013
DeepRed

In the long run, Auckland will have to follow Vancouver's lead and build upwards. The usual suspects' hostility to the Unitary Plan illustrates the enormity of the task for a few major reasons.

Firstly, the property market has effectively become cartellised to the point where market incumbents have all their eggs in that particular basket. It's a bit like farm subsidies in Europe, Japan and America - reform is well overdue, but wealthy and powerful vested interests keep obstructing it. It may have to get to the point where the housing bubble collapses under its own weight, like the American sub-prime bust.

Secondly, snobbery. There's the hoary old chestnut that anything taller than a few storeys belongs in Detroit or the Bronx. Property incumbents don't like their 'million dollar views' obstructed, or 'dregs of humanity' moving next door who they perceive will drive up crime rates. Such views have probably been forged by the rash of shoebox apartments that were built for a foreign student boom that never came - the old Auckland City Council took an important first step by outlawing future shoeboxes.

Thirdly, Auckland has the most global-grade infrastructure of the nation - Auckland Airport being the most obvious example - and hence it's a natural magnet for people and businesses from the rest of the country and abroad. As Tom Semmens posted earlier, some form of regional development would be prudent to take the pressure off Auckland.

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