Capital gains bonus for KiwiBuild buyers

Scoring a Kiwibuild house was already regarded as like winning a lottery, but the prize could be better still with another change by the Government.

Newshub: Housing Minister’s backdown on penalties for KiwiBuild property flippers

Newshub can reveal KiwiBuild has just become a much better investment.

The Housing Minister has quietly softened up the penalties applied to buyers who flip their home.

Documents obtained by Newshub show owners will no longer have to give up all capital gain they make on the house if they sell it within three years.

When Labour announced the policy in 2016, its plan to stop buyers reaping windfall gains was they must not on-sell their home for five years – or else they had to hand all the money they made to the Government.

That’s now changed to if buyers sell within three years, they must give up 30 percent of their profit.

“We really tried to strike the right balance here,” Mr Twyford says.

“We don’t want people cashing in on a potential windfall gain – but on the other hand, these houses are not subsided. People are paying for them with their own hard-earned cash.”

Is this a sign that it was harder to attract buyers to KiwiBuild ballots?

ODT editorial: Cracks appear in KiwiBuild

Kiwibuild, one of Labour’s primary policies, is showing signs of serious cracks.

The key for KiwiBuild and Labour will be winning the public relations battle, on which KiwiBuild narratives gain traction in the coming years.

Labour will suffer if the dominant view is that it is a lottery for yo pros (young professionals) who might be able to buy houses even in expensive places such as Auckland and Queenstown Lakes anyway.

Labour will be on the back foot if KiwiBuild is seen as a windfall for the likes of the graduate doctor and her online marketing manager partner who were the poster couple for the first such houses in Auckland.

And if KiwiBuild is seen as simply rebranding houses that would be built anyway, even apparently good progress towards the 100,000 target over 10 years will be seen as just spin.

It will be detrimental, too, if the view KiwiBuild is a useful hand-up for developers through guaranteed sales becomes the norm.

One wonders, too, if a scheme could have been devised so that potential lottery-like capital gains were ameliorated. Could KiwiBuild have been thought through better so that those buying at a discount would also have to sell at a reduction, the difference going to the next first-home buyer. Or the initial discount on market price would be returned to the government when the houses were sold. Although this has been achieved overseas, policies such as KiwiBuild can become mired in complexity.

Labour must be hoping the issues with the shaky start to KiwiBuild can be patched over, that it really can deliver lots of new homes and ease the housing crisis.

Crucially, it must hope its narratives gain purchase and the public can be convinced the scheme is positive with wide public benefits.

KiwiBuild was a ten year plan, but if it looks like a shambles in eighteen months time it may make the  2020 election campaign challenging for Labour.

 

Ardern: “housing for every price point, every income, every need”

In an interview on Newshub Nation Jacinda Ardern has defended Kiwibuild providing what many would see as expensive housing to people with very good incomes, and said that the Government should provide housing for just about everyone – “So for us it’s about providing housing for every price point, every income level and every need.”

That’s a remarkable statement.

Here is the whole part of the interview transcript that discussed KiwiBuild and housing.


You mention KiwiBuild — there’s been more controversy this week around the income thresholds for KiwiBuild. Have you over-promised on how affordable KiwiBuild homes actually are?

I think when you look at the context of where we’re building in the Auckland market, when you’ve got houses sitting around the million-dollar mark, and first home buyers saying that’s simply not a threshold that we can meet. What we’ve done with KiwiBuild, of course, is not about subsidising housing, but about providing more supply in the housing market where builders and developers just were not producing houses.

From memory, roughly five per cent of houses being built in that market were what you would call something adequate for a first home buyer. We’re trying to turn that around. We’re intervening in the market by building what people are looking for. When you think about that fact that, say, two teachers with five years’ experience, you know they just come under the threshold for KiwiBuild and even then those couples are struggling to find a home.

So that’s what KiwiBuild is all about. It’s rightly been popular, and I think we’ll look back on what we’re doing in the housing market and think this is something that will be a real turning point.

MBIE figures released to us early this year suggested that a first home buyer would need to earn at least $114,000 to buy a $600,000 home. The median household income is only $88,000. We’re looking at seven times the median income in order to afford a $650,000 home. That’s not considered affordable. The New Zealand initiative would say that you would need to bring that down to three times the median income to meet international affordability ratings.

Two points that I would make there. That’s the upper end of KiwiBuild, of course there are price differentials across the country, and we expect they’ll be much more affordable in different parts of the country. That’s the first point. The second point is that that demonstrates — the fact that even at 650 that’s a very big difference from the million-dollar houses that we’re seeing sold more frequently in the Auckland housing market — pointing to the unaffordability that we have right now. So we know we have an issue.

That’s the top end of what KiwiBuild is offering. There are lower price points as well for slightly smaller homes that are good starter homes and, again, they’re cheaper across the country. But it points to the problem that we have in New Zealand that that is the price point that people are having to look at in order to get into the market. We are looking at other options. We’re looking at shared equity schemes.

We are increasing the number of public and state houses available. We’ve got an agenda to build 6400 state and public houses within New Zealand as well.

So for us it’s about providing housing for every price point, every income level and every need.

Alan Johnson from the Salvation Army says KiwiBuild is one example of how Labour has become the party of middle-class welfare. What do you say to that?

I totally disagree. People still have to pay for these homes themselves. They have to muster a deposit themselves.

I think that many would argue with that. KiwiBuild has been criticised widely for months, like “Disappointment is setting in as more people realise that the scheme is really only going to benefit the rich.” – see Political Roundup: Kiwibuild is now ‘socialism for the rich’ (NZH).

The high income couple who Labour used to promote the first KiwiBuild house hand (Ardern described it as “a momentous occasion) over said it was like winning lottery – see Purchasing new KiwiBuild home ‘like winning Lotto’ (1 News).

This is just one of the things that we’re doing across housing. I’ve already mentioned state housing. We’ve brought on an extra 1200 public housing spaces. We’ve invested in housing first, which is to try and work with those who are homeless in New Zealand. We know that a home affects everything. It affects your ability to build community, to keep your kids in the same school, and so we’re looking at everyone’s income needs and everyone’s housing options to make sure that we’re providing for everyone.

But what I would say to Alan as well, is that it’s part of our psyche — the idea of home ownership and the fact that people who consider themselves to be in the middle haven’t been able to afford a home, we should want to turn that around too. I don’t apologise for that — as long as we’re also meeting the needs of other New Zealanders who might not be able to muster those deposits and that’s why we’re looking at shared equity as well.

There are almost 9000 people waiting for a state house; you mentioned state housing. 800 homeless in Auckland alone. Can you see how people would think maybe that $2 billion going to KiwiBuild could be better used elsewhere?

And again, we need to be really careful around the way that we talk about KiwiBuild. That’s, of course, a rotating fund that’s set up to ensure that we have the initial funding for the project. Of course, people are purchasing these homes, and that money goes back into the pot to rebuild additional houses. This is not a subsidy.

This is actually just the state using its large buying power and determining that there’s a gap in the market and partnering with developers to build what’s missing. It is not a subsidy scheme for buyers; it’s just plugging the gap and ensuring that we’re providing where the market has failed.

More than 296,000 people, Prime Minister, are getting an accommodation supplement because they can’t afford their housing costs. That’s 6500 more people than this time last year. Do you need to do more?

Look, absolutely. Absolutely we do. And that’s why it can’t be just about KiwiBuild. It can’t be just about state housing. It can’t be just about emergency housing places.

But one of the great issues, of course, with things like accommodation supplement – what we ultimately need to be doing is making sure that we’ve got that public housing in the first place. So that’s why we stopped the state housing sell-off under the last government. We are increasing supply. We just announced a huge amount of work that we’ll be doing in Porirua to renew and refresh 2900 state homes there. It is a huge agenda that we have.

And I hark back here to something Michael Joseph Savage first said when we first started building state houses under that Labour government. He said, ‘We don’t claim perfection, but we do claim a considerable advancement on where we have been in the past.’ And I’d say the same for us. It’s not perfect. We’ve had 12 months, but already, we’re ramping up a building programme that I think will really pay dividends and make a real difference for people who need shelter.

It was always going to take quite a bit of time to make a significant difference on housing. The National Government tried (with disappointing results) to resolve growing housing shortages and homelessness. The Labour-led Government promised a lot but struggled to show results over their first year in office.

And things aren’t going smoothly. To try to fast track KiwiBuild houses the Government has bought houses ‘off the plan’ – from developers who were already building houses.

The elephant in the room largely remains unaddressed, the Resource Management Act. Things like the constraints it puts on making land available for new housing, and the use of the RMA by NIMBYs to oppose high density housing in their neighbourhoods.

The shortage of land and the shortage of housing are major factors in pushing the prices of housing up to levels that are unaffordable for many on lower incomes who can’t save deposits and can’t afford large mortgages, even at the current low interest rates.

A typical KiwiBuild house has a price of about $650,000. That requires a deposit of at least $65,000, a substantial amount for those on low incomes. And a mortgage of $585,000 at say 4.5% (current KiwiBank rate, low deposit buyers often pay higher mortgage rates) would cost about $26,000 a year, or about $500 per week. That’s hefty enough, but if mortgage rates go up (they were more than double current rates 10-12 years ago) many people would be unable to afford to pay their mortgages.

It is proving difficult enough to build 10,000 houses a year (Labour had a target of 100,000 houses in ten years).

But suggesting that the Government should provide “housing for every price point, every income, every need” sounds like Ardern is in lala land.

Government by lottery?

In light of the growing discontent with establishment government around the world – the EU, the UK and the US have all had severe reprimands by voters recently – should radically different ways of governing be considered?

What about choosing a committee of ‘MPs’ by lottery?

Nicholas Reed Smith suggests this at The Spinoff: The Trump phenomenon proves that electoral politics has failed. Time to try something new:

An enduring problem is that our democracies are not really democracies. They are oligarchies masquerading as democracies. Any system which has elections as the centrepiece of its popular participation is inherently flawed and easily corruptible. The Classical Athenians knew this, which is why they preferred lotteries to elections.

There are flaws in any system of government as long as flawed people are involved. The New Zealand system using MMP has it’s flaws – in particular a repressively high threshold imposed by people in the major parties to exclude fresh new ideas and parties – but it generally works pretty well. It allows voters to restrain single party power.

Our inept democracies have produced a kind of “rational ignorance” amongst the masses. People have come to realise that they cannot effect change in our democracies and have gradually (rationally) disengaged from politics. This enveloping rational ignorance also helps explain why post-truth politics has found fertile ground in our systems, as people no longer have the knowledge or the desire to discern fact from fiction.

Because rational ignorance is a natural product of our flawed democratic systems, counteracting it has to start with trying to make our systems more democratic. Minimising our reliance on elections – which carry with them a cacophony of campaign-focussed politics – while bringing citizen deliberation back to the fore is a good starting point.

If ordinary citizens start believing they can influence decision-making on a regular basis, not just by voting every few years, then the rational ignorance which has taken hold will start to dissipate. To do this however, we need to break through the pervasive elitism which casts ordinary people as being too stupid to have any productive role in politics. This is an insidious view of the masses which has aided the rise of oligarchies all over the West.

We do not lack ideas about how a more deliberative system which minimises the influence of elections (and oligarchs) could work. For instance, University of Pennsylvania Professor, Alex Guerrero, has designed a system specifically for the United States called a lottocracy. In a lottocracy, not only would the presidential election be scrapped, the United States Congress, two bodies which broadly look at all issues, would be replaced by 20 to 25 single issue committees of up to 300 people all randomly chosen by lottery.

In a lottocracy, a president (or prime minister) would still exist, but they would be selected by a committee and mainly fulfil ceremonial roles as their executive powers would be almost completely stripped. Such a system seems radical because we have come to see democracy as solely being about elections and not about the direct involvement of the citizenry. Changing this perception is an important precursor to pursuing any kind of deliberative democratic solution.

In an age where post-truth politics is becoming more and more influential and our democracies more and more inept, a whole new way of thinking is required. As philosopher Alex Guerrero puts it, “we don’t just need to change who the captain is; we need a new way to travel.” Finding ways to bring the “demos” back into democracy is a necessary starting point.

One issue with government by lottery is that there is no guarantee of a representative committee – imagine the angst if a committee was dominated by rural white South Islanders, or urban Asians.

Regardless of the merits of this non-democratic approach I can’t see it happening. It would require a Parliament of established members and parties to vote to do themselves out of jobs and out of power. That’s the opposite of how they usually want to arrange things.