Govt releases housing policy statement focused on affordability that doesn't say what affordability level it wants; Tax deductibility rules exempt new builds, but may limit supply & boost prices
A prebuilt home if release of subdivisions are mandatorily supplied and with State Advances loans for every citizen and with repayments capped to 25 percent would do the job on both supply and affordability. It’s been done before but needs to simply be made universally available this time. Way too long to get to this point and we see all the homes (Keith Hay Homes amongst them) in all areas and have parents who started off in these schemes in the 60’s etc. It’s also good for Treasury and Reserve Bank as money gets paid in and to NZ rather than to offshore profit driven private banks. I can see only one pernicious reason it hasn’t been done already.
Ok two pernicious reasons one being they do not dare go against the big banks and secondly they wish to control our lives and incomes to be socially engineered (no pets, children, privacy etc with renting ) and funnel and control our earnings into the private financial and corporate markets “from cradle to grave”. Dystopian alright… herding is the word. For our own good of course and to serve a social construct (money). Not people. Agree not cheery at all today but revealing.
Absolutely a good idea we've used before. But completely clashes with the post-1989 idea that the Govt shouldn't 'subsidise' home builders and buyers (even though the lack of a capital gains tax + accommodation supplement and rent related subsidies of $4b/year are the most enormous subsidies.
Nailed. We need to really battle and smash the myths around who the real bludgers are in our community. I’m struggling to find a more truthful word than subsidy for these extortionate handouts to the already rich/ super-rich.
So, writing as (a.) a home/property owner who doesn't feel rich (what are we supposed to do, sell up and live in a tent?), (b.) the father of older teenage kids who will be (hopefully, or is this why we used to read all those articles about 30 year olds living with their parents in Italy?) moving out and getting on with their lives and will need somewhere to live.
It seems to me that unless you have some real business talent there aren't many ways to accumulate wealth in Aotearoa...except leverage on house ownership to more house ownership etc. So what would be a way to give people a competitive alternative to that? I recall in one podcast you saying that the government in the late 80's "forgot" to put in a capital gains tax after removing some subsidy on savings (???) Was that when the fuse was lit?
Also, what to do about it politically. Seems like there is noone to vote for that has a chance of yielding any influence that is willing to do anything.
Bernard could start his campaign and run as a TOP candidat/Housing Spokesperson, hit the 5% and be willing to form a coalition with either party (unlike the greens) so could actually have some leverage in coalition negotiations. When you going to declare?
As I regularly say, I'm unelectable and unemployable. And very tough for a party outside of Parliament to get in, unless they've been there before or are a splinter off a big party.
The solution won’t be found within parliamentary politics. Politicians max view is the next election. And then they settle for the expedient. They’ll move on CGT, public housing only when they are forced to. Organising with those who have the least investment in the current rack-rent system is a better option.
I think I’m right in asserting many of our current MPs are already property investors?
Yes on the lighting of the fuse. Capital Gains Tax should have been introduced at the same time. TOP is the only party suggesting a proper wealth tax who would have some power to make a major party do something like this. Greens have no leverage as always go with Labour. But TOP about 1% in polls at the moment.
This is the long term result of Thatcherism and it’s drive to force workers into capitalist ideology and where applicable, debt. Alternative forms of savings such as public pension and superannuation were destroyed in the ‘80s. Property investment, firstly in your own home then for the few with disposable income, investment property, was actively pursued as the only available saving scheme. This either directly or through investment funds. All over the world public housing was sold to occupiers. Over the decades much of this has now passed into the hands of speculators through politics such as the Reserve Bank’s recent decision to make loans to home makers more expensive than property speculators . State housing tenants then became caught in the same ideological commitment to Debt that student loans enforce. What pliable employees graduates with $50k debts make. What sad little capitalists people who pay mortgages, or worse, house owners who are now shutting out their own grandkids from home security are. I’ve got two grandkids. At current house prices in Aotearoa, that’s heading for $2m. Thanks Maggie and your Douglas acolytes. Thanks for all the fish.
Great analysis Bernard. The complex and anomalous fiasco of subsidising new builds for investors with the 20 year deductible interest policy is what happens when you tinker with tax without a secure theoretical basis. You are right-if the goal is affordability there needs to be more to it than simply using the term 70 times. The fundamental tax settings must be revisited to accord with the principle that basic housing is a human right and income from all sources should be taxed. Currently housing is a riskless lotto ticket to tax free wealth accumulation. Correcting the income tax settings by including imputed income from housing (with a suitable exemption for a basic home) could help free resources to house the many thousands of New Zealanders, including children, who subsist in garages, motels or exorbitantly expensive, insecure rentals
Thanks Susan. You're right on fundamental tax settings. So many unintended consequences. Agree something like that is a good idea. I'm still keener on a simple, broad-based land tax paid by all, except iwi. Hard to explain imputed income and means owner's home is exempt. Allows investors to load up debt onto their homes and leaves them with the equity advantage. Ultimately, all housing needs taxing. Leaving out owner-occupied houses leaves the inequality gap largely untouched. I think a land tax helps reduce that inequality gap. But very much welcome the debate. cheers
Thanks Bernard. Terry Baucher and I grappled with a special exemption for the family home and did NOT recommend it. The idea is that each person is allowed an exemption that applies to their total holdings in property and effectively means that modest home owners do not get caught but all the over-investment in OOH is captured. The land tax is an inferior approach as we discuss in the paper-- among other things it is not aimed at curbing the real resource use of building materials in housing as an investment commodity. I think proponents of the land tax need to write a paper to show it would work and how it addresses affordability and the real resource constraints. The problem is that we don't believe we can have this debate politically- it has been shut down and the crazy complex tinkering goes on with little evidence it is going to help. Thanks for the great analysis you provide and the discussion
All the above suggestions won’t be touched with a barge poll by the current government. What baffles is the refusal to set out a higher debt track returning to 25-30% of GDP and funding Housing supply enabling roading pipes etc like Mill Road, Waikato Expressway etc, Whangerei port marsden, tauranga north link etc. If they’re fearful of costs ppp them or let super fund stump up the cash and toll the new roads. This is all do able and politically achievable. Maddening that they chose not to.
I wonder if this is going to be the big thing that will shake up housing in NZ
'California Senate Bill 9, allows as many as two duplexes, two houses with attached units, or a combination — capped at four units — on single-family lots across California, without local approval.'
Great link Giles. The National Policy Statement for Urban Development released last year effectively ordered our councils to allow that sort of housing on single lots. In fact, even more intense. The Auckland Unitary Plan also did this, but was gutted by the removal of many suburbs, including Remuera, Ponsonby and Herne Bay after a revolt by NIMBYs in the leafy suburbs. Same in Wellington where Mt Vic and Thorndon were carved out. The usual local politics where ratepayers who vote call the tune. They're usually older and wealthier home owners in the leafy inner city suburbs. The usual screwing of the scrum of democracy. The Productivity Commission described it as a Democratic Deficit.
For anyone interested in the limitations of the approach in the National Policy Statement for Urban Development, I highly recommended reading the recent Housing Assessment report by Auckland Council:
1. It is likely any affordability improvements influenced by the NPS assumptions could be concentrated on households earning well above Auckland's median income (see key conclusions at page viii)
2. Upzoning has inflated redevelopment premiums (see p98-99)
3. Although Auckland has ample zoned development capacity, it is unlikely to make a material difference to housing affordability for the majority of potential first home buyers. There are many other drivers outside council's influence (see p121)
Only a significant investment in public housing will provide workers with secure homes AND bring down the current ponzi house prices. Of course we’d need a proper Ministry of Works and a Reserve bank commitment to public welfare rather than the present commitment to Disney Land financal speculation. Don’t hold your breath waiting for Ardern to go to bat for that package 🙄
And now 45 new cases in emergency housing. The knock-on effects go on and on. What's the point is making all the right noises about child poverty and mental health and well being etc., when a critical driver of all of these things is allowed to go completely out of control.
Let's imagine a hypothetical situation where the government is on our side. ( I know I know, but bear with me.) It would declare that housing is a human right and that the real estate casino is incompatible with democracy and equality and human rights. It would announce a 100% cgt on net profit on speculative real estate. Voila. This would wipe out speculation and the real estate "profession". Do it right, phase it in, whatever. No more making hay for doing nothing at the expense of society.
And speaking of doing nothing, how about those private banks? Contrary to popular fantasy, banks don't lend deposits. All of those billions in mortgage loans are printed out of thin air and introduced into the economy as interest-bearing debt. It wobbles my mind that not only are the banks printing the great majority of the NZ$, they're mostly foreign banks! Imagine if Kiwis became aware of what is being done to them.
Btw, if you didn't know that banks don't lend deposits, what the first two minutes of this short video from the Bank of England: https://www.youtube.com/watch?v=CvRAqR2pAgw
Thanks Marc. That Bank of England paper and video are doozies. Sadly, the suggestions above would never get past median voters. But I think there are options that could work for both main parties if they were forced into it by a minor party offering a chance to govern.
I'm a fan of a 0.3% annual land tax on unimproved value of all non-iwi land to fund at least $300b of investment in affordable medium-density housing and public transport/cycling/walking infrastructure inside the cities' current envelope over 20 years. Make the tax 3% for residential-zoned land without houses on it.
Ensure the $3b a year of revenues (plus the eventually forgone $4b/year spending on accommodation supplements and rent subsidies) is used to service $300b of debt maturing from 2050 that is issued, managed and spent by an independently legislated-for Affordable Housing and Climate Infrastructure Commission. It would replace Waka Kotahi/Kainga Ora/Infrastructure Commission and Climate Commission.
Set it targets in law of zero net carbon emissions from housing and transport by 2050 and housing costs of three times income to buy and less than 30% of disposable income to rent by 2050. Make it a Reserve Bank/Public Finance Act/RMA Act style cross-party deal legislated for decades to come. And then let the Commission get on with it, with oversight and the ability to sack the Commissioner who fails to get on target. Job done...
1. The Minister of Finance could drastically increase the funding of IRD's compliance / enforcement role. I can't remember the percentage from last year when IRD made an estimate of the amount of Bright Line Test sales that weren't reported in tax returns (40%?). The payback on the extra IRD spending to chase the cheats would be phenomenal.
2. I would suggest that many of the houses being built today are one building code change away from being substandard. Too many builders see the building code as being the maximum required, not the minimum. But to avoid affordability issues the gov't won't want to improve the building code as that would raise costs.
3. Yes to a CGT, imputed rate of return, land tax or whatever. Just do one of them (for starters).
4. Have a super-profits tax levy on banks if the cost: average annual income multiple exceeds the ten year average from say thirty years ago. Say back then it was 6 and it is now 9. That means the banks pay an extra 3% tax on their profits.
Interesting point on building code changes. It’s why banks are so nervous about new builds. Nice idea on the superprofits levy. Sadly, IRD would run a mile. Not the pure policy they like.
Super profit taxes are not the answer. In reality, these costs simply get passed onto bank customers.
I'd rather the RBNZ provide interest free loans to local councils (rather than banks) so they can get on with the infrastructure required to intensify urban areas, and support green/brown fields development. Until we conquer the supply problem, we will be for ever chasing our details. The banks don't need liquidity, they're awash with it locally and from offshore.
Nice work Bernard, I don't see the level of information elsewhere.
I was staggered to see how much investor money has gone into new builds. I am also surprised the the government has extended interest deductibility for 20 years. If the behaviour they want to incent is to get the property built, then remove all incentives for investors after the initial owner sells so that so FHB are on an even playing field. I have never seen such a frenzied land grab for anything that can be developed to feed the new build investor market.
Surely the big news here is this: "Emergency, transition, social, and council housing:
If your property is used for emergency, transitional or social housing when you leased it to the Crown (for example, the Ministry of Housing and Urban Development or Kāinga Ora) or to a registered community housing provider then you can still claim interest deductions." This is huge but the mainsteam media doesn't seem to have noticed. Imagine if a significant percentage of private rental owners booted out their tenants and signed up with a social housing provider. It would start to empty the motels but severely disrupt the private rental market.
A prebuilt home if release of subdivisions are mandatorily supplied and with State Advances loans for every citizen and with repayments capped to 25 percent would do the job on both supply and affordability. It’s been done before but needs to simply be made universally available this time. Way too long to get to this point and we see all the homes (Keith Hay Homes amongst them) in all areas and have parents who started off in these schemes in the 60’s etc. It’s also good for Treasury and Reserve Bank as money gets paid in and to NZ rather than to offshore profit driven private banks. I can see only one pernicious reason it hasn’t been done already.
Ok two pernicious reasons one being they do not dare go against the big banks and secondly they wish to control our lives and incomes to be socially engineered (no pets, children, privacy etc with renting ) and funnel and control our earnings into the private financial and corporate markets “from cradle to grave”. Dystopian alright… herding is the word. For our own good of course and to serve a social construct (money). Not people. Agree not cheery at all today but revealing.
Absolutely a good idea we've used before. But completely clashes with the post-1989 idea that the Govt shouldn't 'subsidise' home builders and buyers (even though the lack of a capital gains tax + accommodation supplement and rent related subsidies of $4b/year are the most enormous subsidies.
Yes and with enormous removal of rights and privacy for recipients. Awful.
Nailed. We need to really battle and smash the myths around who the real bludgers are in our community. I’m struggling to find a more truthful word than subsidy for these extortionate handouts to the already rich/ super-rich.
So, writing as (a.) a home/property owner who doesn't feel rich (what are we supposed to do, sell up and live in a tent?), (b.) the father of older teenage kids who will be (hopefully, or is this why we used to read all those articles about 30 year olds living with their parents in Italy?) moving out and getting on with their lives and will need somewhere to live.
It seems to me that unless you have some real business talent there aren't many ways to accumulate wealth in Aotearoa...except leverage on house ownership to more house ownership etc. So what would be a way to give people a competitive alternative to that? I recall in one podcast you saying that the government in the late 80's "forgot" to put in a capital gains tax after removing some subsidy on savings (???) Was that when the fuse was lit?
Also, what to do about it politically. Seems like there is noone to vote for that has a chance of yielding any influence that is willing to do anything.
Bernard could start his campaign and run as a TOP candidat/Housing Spokesperson, hit the 5% and be willing to form a coalition with either party (unlike the greens) so could actually have some leverage in coalition negotiations. When you going to declare?
As I regularly say, I'm unelectable and unemployable. And very tough for a party outside of Parliament to get in, unless they've been there before or are a splinter off a big party.
The solution won’t be found within parliamentary politics. Politicians max view is the next election. And then they settle for the expedient. They’ll move on CGT, public housing only when they are forced to. Organising with those who have the least investment in the current rack-rent system is a better option.
I think I’m right in asserting many of our current MPs are already property investors?
Yes on the lighting of the fuse. Capital Gains Tax should have been introduced at the same time. TOP is the only party suggesting a proper wealth tax who would have some power to make a major party do something like this. Greens have no leverage as always go with Labour. But TOP about 1% in polls at the moment.
This is the long term result of Thatcherism and it’s drive to force workers into capitalist ideology and where applicable, debt. Alternative forms of savings such as public pension and superannuation were destroyed in the ‘80s. Property investment, firstly in your own home then for the few with disposable income, investment property, was actively pursued as the only available saving scheme. This either directly or through investment funds. All over the world public housing was sold to occupiers. Over the decades much of this has now passed into the hands of speculators through politics such as the Reserve Bank’s recent decision to make loans to home makers more expensive than property speculators . State housing tenants then became caught in the same ideological commitment to Debt that student loans enforce. What pliable employees graduates with $50k debts make. What sad little capitalists people who pay mortgages, or worse, house owners who are now shutting out their own grandkids from home security are. I’ve got two grandkids. At current house prices in Aotearoa, that’s heading for $2m. Thanks Maggie and your Douglas acolytes. Thanks for all the fish.
Great analysis Bernard. The complex and anomalous fiasco of subsidising new builds for investors with the 20 year deductible interest policy is what happens when you tinker with tax without a secure theoretical basis. You are right-if the goal is affordability there needs to be more to it than simply using the term 70 times. The fundamental tax settings must be revisited to accord with the principle that basic housing is a human right and income from all sources should be taxed. Currently housing is a riskless lotto ticket to tax free wealth accumulation. Correcting the income tax settings by including imputed income from housing (with a suitable exemption for a basic home) could help free resources to house the many thousands of New Zealanders, including children, who subsist in garages, motels or exorbitantly expensive, insecure rentals
Thanks Susan. You're right on fundamental tax settings. So many unintended consequences. Agree something like that is a good idea. I'm still keener on a simple, broad-based land tax paid by all, except iwi. Hard to explain imputed income and means owner's home is exempt. Allows investors to load up debt onto their homes and leaves them with the equity advantage. Ultimately, all housing needs taxing. Leaving out owner-occupied houses leaves the inequality gap largely untouched. I think a land tax helps reduce that inequality gap. But very much welcome the debate. cheers
Thanks Bernard. Terry Baucher and I grappled with a special exemption for the family home and did NOT recommend it. The idea is that each person is allowed an exemption that applies to their total holdings in property and effectively means that modest home owners do not get caught but all the over-investment in OOH is captured. The land tax is an inferior approach as we discuss in the paper-- among other things it is not aimed at curbing the real resource use of building materials in housing as an investment commodity. I think proponents of the land tax need to write a paper to show it would work and how it addresses affordability and the real resource constraints. The problem is that we don't believe we can have this debate politically- it has been shut down and the crazy complex tinkering goes on with little evidence it is going to help. Thanks for the great analysis you provide and the discussion
All the above suggestions won’t be touched with a barge poll by the current government. What baffles is the refusal to set out a higher debt track returning to 25-30% of GDP and funding Housing supply enabling roading pipes etc like Mill Road, Waikato Expressway etc, Whangerei port marsden, tauranga north link etc. If they’re fearful of costs ppp them or let super fund stump up the cash and toll the new roads. This is all do able and politically achievable. Maddening that they chose not to.
*choose
I wonder if this is going to be the big thing that will shake up housing in NZ
'California Senate Bill 9, allows as many as two duplexes, two houses with attached units, or a combination — capped at four units — on single-family lots across California, without local approval.'
https://www.latimes.com/california/story/2021-09-22/skelton-sb9-housing-single-family-zoning
We follow California in almost every aspect of our lives, whether we realise it or not. will will follow their lead this time?
Great link Giles. The National Policy Statement for Urban Development released last year effectively ordered our councils to allow that sort of housing on single lots. In fact, even more intense. The Auckland Unitary Plan also did this, but was gutted by the removal of many suburbs, including Remuera, Ponsonby and Herne Bay after a revolt by NIMBYs in the leafy suburbs. Same in Wellington where Mt Vic and Thorndon were carved out. The usual local politics where ratepayers who vote call the tune. They're usually older and wealthier home owners in the leafy inner city suburbs. The usual screwing of the scrum of democracy. The Productivity Commission described it as a Democratic Deficit.
For anyone interested in the limitations of the approach in the National Policy Statement for Urban Development, I highly recommended reading the recent Housing Assessment report by Auckland Council:
https://knowledgeauckland.org.nz/publications/housing-assessment-for-the-auckland-region-national-policy-statement-on-urban-development-2020/
Some lowlights:
1. It is likely any affordability improvements influenced by the NPS assumptions could be concentrated on households earning well above Auckland's median income (see key conclusions at page viii)
2. Upzoning has inflated redevelopment premiums (see p98-99)
3. Although Auckland has ample zoned development capacity, it is unlikely to make a material difference to housing affordability for the majority of potential first home buyers. There are many other drivers outside council's influence (see p121)
Excellent link. Thanks Rachel. Very useful.
Only a significant investment in public housing will provide workers with secure homes AND bring down the current ponzi house prices. Of course we’d need a proper Ministry of Works and a Reserve bank commitment to public welfare rather than the present commitment to Disney Land financal speculation. Don’t hold your breath waiting for Ardern to go to bat for that package 🙄
And now 45 new cases in emergency housing. The knock-on effects go on and on. What's the point is making all the right noises about child poverty and mental health and well being etc., when a critical driver of all of these things is allowed to go completely out of control.
Most of them "expected" apparently. Expected when? Yesterday? A week ago? When the last level change was announced?
Let's imagine a hypothetical situation where the government is on our side. ( I know I know, but bear with me.) It would declare that housing is a human right and that the real estate casino is incompatible with democracy and equality and human rights. It would announce a 100% cgt on net profit on speculative real estate. Voila. This would wipe out speculation and the real estate "profession". Do it right, phase it in, whatever. No more making hay for doing nothing at the expense of society.
And speaking of doing nothing, how about those private banks? Contrary to popular fantasy, banks don't lend deposits. All of those billions in mortgage loans are printed out of thin air and introduced into the economy as interest-bearing debt. It wobbles my mind that not only are the banks printing the great majority of the NZ$, they're mostly foreign banks! Imagine if Kiwis became aware of what is being done to them.
Btw, if you didn't know that banks don't lend deposits, what the first two minutes of this short video from the Bank of England: https://www.youtube.com/watch?v=CvRAqR2pAgw
Thanks Marc. That Bank of England paper and video are doozies. Sadly, the suggestions above would never get past median voters. But I think there are options that could work for both main parties if they were forced into it by a minor party offering a chance to govern.
I'm a fan of a 0.3% annual land tax on unimproved value of all non-iwi land to fund at least $300b of investment in affordable medium-density housing and public transport/cycling/walking infrastructure inside the cities' current envelope over 20 years. Make the tax 3% for residential-zoned land without houses on it.
Ensure the $3b a year of revenues (plus the eventually forgone $4b/year spending on accommodation supplements and rent subsidies) is used to service $300b of debt maturing from 2050 that is issued, managed and spent by an independently legislated-for Affordable Housing and Climate Infrastructure Commission. It would replace Waka Kotahi/Kainga Ora/Infrastructure Commission and Climate Commission.
Set it targets in law of zero net carbon emissions from housing and transport by 2050 and housing costs of three times income to buy and less than 30% of disposable income to rent by 2050. Make it a Reserve Bank/Public Finance Act/RMA Act style cross-party deal legislated for decades to come. And then let the Commission get on with it, with oversight and the ability to sack the Commissioner who fails to get on target. Job done...
Ideas all over the place: -
1. The Minister of Finance could drastically increase the funding of IRD's compliance / enforcement role. I can't remember the percentage from last year when IRD made an estimate of the amount of Bright Line Test sales that weren't reported in tax returns (40%?). The payback on the extra IRD spending to chase the cheats would be phenomenal.
2. I would suggest that many of the houses being built today are one building code change away from being substandard. Too many builders see the building code as being the maximum required, not the minimum. But to avoid affordability issues the gov't won't want to improve the building code as that would raise costs.
3. Yes to a CGT, imputed rate of return, land tax or whatever. Just do one of them (for starters).
4. Have a super-profits tax levy on banks if the cost: average annual income multiple exceeds the ten year average from say thirty years ago. Say back then it was 6 and it is now 9. That means the banks pay an extra 3% tax on their profits.
Interesting point on building code changes. It’s why banks are so nervous about new builds. Nice idea on the superprofits levy. Sadly, IRD would run a mile. Not the pure policy they like.
Super profit taxes are not the answer. In reality, these costs simply get passed onto bank customers.
I'd rather the RBNZ provide interest free loans to local councils (rather than banks) so they can get on with the infrastructure required to intensify urban areas, and support green/brown fields development. Until we conquer the supply problem, we will be for ever chasing our details. The banks don't need liquidity, they're awash with it locally and from offshore.
Nice work Bernard, I don't see the level of information elsewhere.
I was staggered to see how much investor money has gone into new builds. I am also surprised the the government has extended interest deductibility for 20 years. If the behaviour they want to incent is to get the property built, then remove all incentives for investors after the initial owner sells so that so FHB are on an even playing field. I have never seen such a frenzied land grab for anything that can be developed to feed the new build investor market.
Cheers Arthur. The land grab is frenzied. The sooner the medium density rules apply to all suburbs, the better.
Surely the big news here is this: "Emergency, transition, social, and council housing:
If your property is used for emergency, transitional or social housing when you leased it to the Crown (for example, the Ministry of Housing and Urban Development or Kāinga Ora) or to a registered community housing provider then you can still claim interest deductions." This is huge but the mainsteam media doesn't seem to have noticed. Imagine if a significant percentage of private rental owners booted out their tenants and signed up with a social housing provider. It would start to empty the motels but severely disrupt the private rental market.
Bernard, does our membership of the trans Pacific trade agreement limit our ability to reinstsate big government agencies such as a Ministry of Works?
Thanks Dean. Not that I've seen. Didn't stop creation of Infrastructure Commission. Welcome more information from other readers.