Can the new government stabilise house prices?

Presumably one of the things on the agenda of parties negotiating to form a new government will be property prices.

Can much be done to control property inflation? It is a world wide problem.

Is it already under control enough?

Property prices escalated early in the century – I bought a house in Dunedin in 2001 for $108,000 and sold it in 2006 for $245,000.

They flattened with the arrival of the New Zealand recession in 2008, followed by the Global Financial Crisis.

After a few years they took off again, especially in Auckland and some regional places like Queenstown. Over the last year they seem to have flattened off in Auckland but continue to surge in some other areas.

From Reddit: What can the new government do to lower or stabilize housing prices?

I used to live in KL back in the mid 2000s and have seen how housing prices there and in singapore skyrocket with the influx of overseas investors. Funny enough same thing happened here too

Let’s not turn this into a racial issue because it’s not. Money flowing overseas did increase housing prices. That’s a fact. Floodgates open and infrastructure could not keep up.

However Singapore and the likes of Canada have done stricter rules to stabilize and even lowered housing prices.

Not pre 2005 prices cause that’s not gonna happen but at least it’s helped wages to at least keep up with the prices bit by bit.

Rules like a first time home buyer has to stay in their property for first 5 years and not being able to rent it out.

Rules like not being able to flip a house within a few years.

Rules like that seem too restrictive. I have several times sold a house within five years due to changing circumstances or upgrading.

Only residents are able to buy land/property etc.

Capital gains tax.

List goes on.

Some of it is really common sense and I can’t help but wonder why national would not implement such measures years ago.

I can only guess that the Government had hoped that property prices would have levelled off without too much intervention, and that measures aimed at increasing land supply would have been quicker and more effective.

The Government may also have been caught flat footed by the downturn in Australia that saw a big turn around in trans-Tasman migration.

One comment:

I like the idea of foreign investors being locked toward building new houses as opposed to purchasing existing homes or something along those lines.

That is Labour policy. A response:

Australia has always had this, its a good idea in theory, butit doesn’t work on its own. There are too many loopholes and various schemes available to make you a non-foreign buyer. Also it wasn’t ever enforced properly.

Some suggestions:

…assuming that the new government is not as blinkered as the outgoing one, here are some reasonable ideas:

  • Only citizens can purchase freehold property (residential, commercial, and rural). If foreigners want to invest here, allow leases up to 99 years.
  • Universal land tax (e.g. 0.5%), with the revenue raised to reduce income taxes by the same absolute value. The outcome would be that the average family, with an average income, owning an average number of properties, won’t pay any more in tax. It would be a massive help to the economy, as workers would be rewarded significantly more for their labour.
  • Punitive rates (e.g. 3%) on land bankers, i.e. undeveloped land within urban boundaries. This has been used successfully overseas to encourage development and discourage land banking.
  • Stabilise immigration at a rate which corresponds to the country’s ability to build new homes, after accounting for natural population growth and making up the existing shortfall.

A land tax is worth considering, as long as it is offset by a reduction in income tax. It would be simple to implement if it is not complicated by exceptions. We already pay a form of land tax via our local body rates.

Stabilising immigration is not easy. We can control the number of new immigrants – and I think that has been fairly consistent. Winston Peters (and others) have claimed we have ‘mass immigration’, that’s either populist nonsense or ignorant.

But what has caused the biggest change in net migration is a sudden change in fewer New Zealand citizens leaving, especially for Australia, and a surge in New Zealanders returning. The Government cannot control this, and it makes planning stable nett immigration numbers difficult.

Do we need to do much?

Auckland house prices have stabilized already. We are waiting on evidence of falling, but time to sell has increased and inventory is decreasing. These are good signs.

It’s plateaued high, but at least it’s not increasing further.

We may be stuck with the current price levels, unless there is a major international influence. No Government will be keen on a significant slide in property prices.

A detailed comment from FrameworkisDigimon:

OP your solutions are way too authoritarian. And that’s me saying that. I am perfectly comfortable with states spying on me and CCTV cameras on every corner.

Investors are the problem: regardless of where they live. Owner-occupied or even just occupied housing is a crucial feature of doing things the right way. Getting investment money to go towards shares and other opportunities likely to improve productivity is important too. Long term housing availability requires breaking boom bust feature of housing construction because, shockingly, people keep having babies in recessions. To that end…

Land tax. This will encourage developing real estate rather than sitting on the land. There are lots of other benefits. Cut GST along with instituting this. Unless you own buckets of land and spend little, you’ll be better off.

Capital Gains Tax. Ghost properties which are just sitting there maybe being pointlessly renovated or maybe just completely empty are a consequence of being able to flip properties for easy money. Tax those gains. Basically, by Capital Gains Tax I mean adjust the tax system to favour (a) investing in shares and (b) investing in the construction of denser housing forms.

Harder urban boundaries (esp. in Auckland) and end subsidisation of greenfields development. This sound contradictory but if you keep building on fertile land you are literally killing this country. Sprawl is environmentally evil and contra-social sustainability.

Force places which are overloaded with “pull up the drawbridge, I’ve got mine NIMBYs” to accept (a) transit developments and (b) a variety of housing forms. Basically, the idea is that if you have a plot of land and could develop it into 7 units, you should be (i) able to do so and (ii) incentivised by the tax system to do so. The harder urban boundary is accompanied by fewer restrictions on the types of development that are able to occur within those limits… but with definite state oversight in order to avoid, e.g., leaky buildings (turns out, if you don’t regulate the cowboys out of the market, everyone is a cowboy).

Develop a large state owned building programme firm. I don’t care how this is done (the army advertises itself as a tradie’s paradise so maybe we should use it as one, nationalising some suitably large existing firm, starting from scratch) but it needs to happen. This entity would exist to build when private developers don’t want to build, and otherwise to build/oversee particularly large projects. For instance, planners might decide an areas could be more intensely developed. At that point figure out a heavy duty public transport scheme and start building it. Then get our entity to come along and build/fund some tower blocks, terraced houses and other types of property close to the route.

Key ideas: if land is expensive (it is), then you can make the dwellings cheaper by having more of them on the same amount of land, but our entire system is not designed to do this. Even worse, our system is designed to basically stop building anything in recessions. We have to adjust the incentives of all possible sources of money and bring the state in on the construction side, whilst also dramatically altering what kinds of infrastructure we build.

Whatever the incoming Government does to address housing and land availability it is unlikely to have a quick or dramatic effect.

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7 Comments

  1. Blazer

     /  9th October 2017

    as outlined plenty of options to rein in inflating house prices…takes political will.As over 60% still own their own home the fear is..great.It should be a better time to address this issue now…John has cashed up a big …one.Onya John and your 4 point plan of…2007.

    Reply
  2. Gerrit

     /  9th October 2017

    The NIMBY complaint has some validity. For the new tenement apartments bring more people into the neighbourhood without any increase in municipal amenities to cater for the higher population densities. No new parks, no new sports fields, no new libraries, no new swimming pools, no new schools (how does the education department plan for new schools when a designated school zone can increase in population three fold?), no new roading infrastructure, etc., etc.

    The fact that any developer can buy your section next door, build (without consent notification to you) a three story apartment building that shades your house, increases noise levels, increases street traffic flow, etc. converts many people into NIMBY followers.

    In Manurewa here we have seen the removal of at least two dozen stand alone state houses houses form their sections and building work is about to commence on tenement housing (coronation street style?). Great it will house the people but is Rowandale School getting increased classrooms plus funding for more teachers? Will the local parks be extended to cater for more people? Will the Clendon and Manurewa libraries be extended? Will James Cook High School be made even bigger? Will the Sykes Road swimming pool complex be made bigger? Will local roads be improved for increased traffic flow? Will local public transport be upgraded? (there are no covered bus shelters in Manurewa).

    No use plonking people into tenement (apartment is a glossy term for tenement) housing without the infrastructure to support those extra people.

    Reply
    • Blazer

       /  9th October 2017

      those tenements are in preparation for booting people out of Glen Innes to make way for private developers there.Infrastructure is not of much concern to those who planned this=National Govt+’friends’.

      Reply
  3. David

     /  9th October 2017

    “Only citizens can purchase freehold property (residential, commercial, and rural). If foreigners want to invest here, allow leases up to 99 years.”

    I’m in favour of this where there is no reciprocal right to own property. Fine for an Aussie to own property in NZ, as NZ’ers can own property in Australia. Not so for other countries and this rule should apply.

    Reply
  4. Alan Wilkinson

     /  9th October 2017

    Anything that has a quick and dramatic effect will be politically disastrous. The Left will act to suppress demand. National will act to increase supply. Neither will dare anything bold for the reason given. Regulatory strangulation has created a monster that neither dares slaying.

    Reply
  5. It would be very wrong to make people go into negative equity by making laws that cause their houses to be worth less than they paid for them-this happens anyway, at times. Some houses around here have big greedy prices on them-guess which ones hang on and hang on. Some people I know want to sell their house, to which they have done very little, and buy an expensive one elsewhere-but it seems that people don’t want to pay for them to have an expensive house somewhere else.

    Reply

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