A 'housing accord' bringing together politicians, policymakers and experts to come up with binding recommendations for housing going forward is "well overdue" ASB senior economist Mark Smith says.
In ASB's latest Economic Weekly, Smith says that with our politicians "the needs of the country need to come first, rather than using housing as a political football and an avenue for point scoring." ASB is New Zealand's second biggest mortgage lender with a $62.236 billion home loan book at the end of September.
Smith has come up with a series of suggestions to tackle the vexed housing questions.
He concedes it is "not an exhaustive list of considerations" and not all of the above suggestions made may be politically palatable.
"However, it is better to highlight the issues and look at potential solutions rather than throw this into the too-hard basket and watch the housing crisis intensify."
And Smith has some reasonably blunt messages for our politicians.
"The blame game needs to stop, and group and self-interest needs to be parked. A housing accord is well overdue, to bring together politicians, policymakers and experts to discuss what could be done. Recommendations from this will need to have bite rather to be consigned into the too-hard basket by central and local government," Smith says.
In terms of the policy approach, he says a "multi-faceted and co-ordinated policy approach" will be needed to tackle the housing issue, covering both demand- and supply-side aspects.
"Proposed moves to add house prices in the [Reserve Bank’s] monetary policy remit may not add much in practice according to the RBNZ but they will promote transparency and a more considered view on how the housing market impacts the monetary policy outlook.
"Re-imposing the loan-to value ratio (LVR) restrictions from next March looks to be long overdue and it is good to see banks play their part in reining in some of the riskier lending. The RBNZ should also be prepared to further expand its policy toolkit to help rein in demand."
Smith says the Government has an important role to play on both the housing demand and supply side.
He says the taxation system is in need of an overhaul to tilt incentives towards boosting incomes, employment and productive investment.
"The tax treatment of investor housing will need to be revisited, with consideration of capital gains or land taxes to help level the playing field or encourage efficient use of land available for residential use."
In order to tackle housing affordability, Smith says the country needs to get much, much better at building affordable homes.
"Boosting productivity in the construction sector and the provision of affordable housing should be a top priority.
"Regulatory reform may help here as will increasing more supply-side grunt via increasing employment, skills and training in this sector. But let’s not kid ourselves that this will be easy. Lifting economy-wide productivity has proved to be much easier said than done and experts have generally been stumped as to why NZ’s productivity performance has been so persistently poor."
Smith says there needs to be a nationwide conversation on how many people NZ needs, and the adoption of a population policy given the sizeable implications for housing and infrastructure provision.
"Should NZ’s population be 5 million, 10 million or even 100 million people?
"A discussion on immigration settings is needed.
"About two-thirds of the close to half a million gain in NZ’s resident population over the past five years has come from net immigration as opposed to around one third since the 1960s."
The current border restrictions provided an opportune time to assess how well the economy and housing market will cope without more people streaming in, Smith said.
86 Comments
If they don't fix it soon then NZ will just consist of rich boomers living in mansions being served by poor immigrants because a whole generation of young kiwis will be in Ozzy. Some on this site would love sitting on a throne whilst a young immigrant cools them down with a giant ostrich feather but surely not all boomers are like this? Maybe they are. Anyhow I am voting with my feet. Oz in two weeks.
Orrsum
I hope you noted the comment:
"The blame game needs to stop, and group and self-interest needs to be parked".
You blaming the boomers is simply blame shifting self-appeasement. The reality is that anyone over the past decade - and even those FHB over the past three years - have done exceptionally well. Boomers have not been that active in the past decade having bought their properties long, long ago.
If anything, retired boomers term deposits to supplement their retirement income have been considerably affected as their term deposits will be now returning about a quarter of that anticipated - that is funding younger generations with cheap mortgage rates.
So get over your squealing - its not only pathetic and tiresome, it is achieving absolutely nothing.
The whole "income" bleat is an excuse for boomers to cry poor because it shifts attention away from their massive asset base.
The distinction of capital and income is a pretty irrelevant one. If you have 5m worth of house and a too low income for your wants, there are plenty of ways to crystallize that.
Good mechanism for varying the temperature can be found here. https://www.stockwhips.co.nz/
Talk of taxing investment properties makes me nervous for renters. Only if it's combined with a rent freeze would it deter property investment.
How about removing equity as a source of a deposit? If an investor wants to buy another property, they need to have either saved up the deposit, or sell one of their other assets. Close the trust and business loopholes. Start from day dot - if you have existing assets, lucky you. You have to sell one to buy one unless you're a good saver, or you choose to remortgage an existing asset - more risk for you. If you don't have existing assets, saving for a deposit or receiving a gift is your only way.
This idea of removing equity as a source of a deposit doesn't make sense. If they have enough equity in one property to support another loan on a further property, what's to stop them simply selling the first property and converting it into cash, then using that cash to get two loans for two properties?
Yes and No. No effect on demand as someone wants to own two houses in both scenarios. However a short term change in supply if they have to sell one to buy two. Their equity is realised not theoretical. I suspect if forced to sell that many will find the cash proceeds from settlement wouldn't be as high as their theoretical value suggested, especially if many are selling at the same time. If that happened then the MV of homes around them would lower too as MV estimate is based on nearby sales. This feedback loop would result in lower house prices. Or it might not. One things for sure...doing nothing isn't working.
Most likely they will simply sell it to themselves. This can be accomplished nothing effect by selling to a spouse or a trust or a closely held company. You would create a small market for a buy and sell back service where an independent company buys your property from you so long as they have an agreement to sell it back to you the following day for whatever you told them to pay for the property plus a $250 fee for their trouble. (Ignoring conveyancing costs here)
As long as you are outside the bright line period and your intention was to hold long term and collect rent you should be fine. In this instance you would want to inflate the value not lower it (attracting more tax if it is applicable, done right no tax should be due). It would be fairly easy to show that you had no intention of selling the property if you immediately rebuy it. Also selling it to your spouse / family trust is a perfectly legitimate activity. You will of course pick the very highest end of the highest valuation you can find at the time as your sale price so as to maximise the amount of equity realised (so you can pay more for the 2 new properties). It will devolve into a rubber stamping exercise.
it is perfectly legitimate but the market already flags these transactions as "non-market level" and "non-bona fide".
So we already have a way of excluding these as qualifying transactions and your theory is utterly blown.
Banks aren't stupid either. They'd see this miles off.
The real estate industry is quick to forget that their ranks aren't exactly filled with neuroscientists.
This stuff is easy to work out.
pretty simple really... 10 year rent freeze and unoccupied property tax. That would discourage many investors, which would be great for our people who most need assistance (renters and FHBs). Who cares if that doesn't fit the banks agenda? Oh of course, our politicians might not want to exclude themselves from a cushy $400K appointment (for doing FA) in the future so will look after the banks interests.
IMO John Keys' ANZ appointment was no less than a sick kind of signposting and a subversive way to influence our current politicians. Do we not pride ourselves on being free of corruption or are we just going to accept this kind of behaviour without objection?
Hans.. yes supply is A problem but is certainly not THE problem and will be difficult and take considerable time to rectify. Demand, mainly caused by high rents vs mortgage costs and more so by mass immigration are a much bigger contributing factor and both these issues could be fixed much more easily and with almost immediate effect. How can anyone try to pretend that allowing about 300 000 fewer migrants to come here over the next five years wouldn't massively improve the housing situation? It is so heartless and cruel to our renters to do so!
What, no mention of increasing capital risk weightings for residential mortgages? How about banning interest deductibility? Why not make mortgages non-recourse? Imagine the squealing from the banks and yet no one seems to have any interest in tackling the massive debt bubble that is one of the root causes of the housing problem.
My totally unscientific view is that a stable population is about 4.5 million (where it was in 2013). The 'just in time' infrastructure provision of cities in this country has been a colossal failure. Around 2013 things seemed to get a bit out of hand - housing going crazy, previously short vehicle trips taking half an hour etc. Could probably fit more people in, but you can't regulate where people live and any more in the Tauranga-Hamilton-Auckland corridor will be over the edge.
I am finally, officially over housing!!! Many of the things in this article have been talked about for more than 10 years. I have been a part of the conversation here and elsewhere. I am sick of all the talk and lack of action. Meaningful change WON'T happen. Successive governments have shown they don't take it seriously, why would that change now?
The only thing that will address the situation is a crash. That will reduce prices, but it will do a lot of collateral economic damage.
I will, from here on in, confine myself to non- housing articles! Good luck.
Jacinda should step up and get the people on board with the idea of urgent action. Like she did during Covid. This is the one things she's great at - giving nice speeches to rally people under her flag. Be a leader Jacinda, you did it in March and it worked out pretty well. Stop looking for excuses.
COVID-19, Christchurch mosque shootings, boiling housing market.
2 of these had responses with majority support from politicians, business leaders and the public.
The ideas being put forward now are the same ones that have been talked about for the last decade.
"The Reserve Bank introduced LVRs in October 2013 in response to rapid house price growth"
We know what needs to be done. We just need someone with a spine to actually do it. Labour now has 3 years to ignore peer pressure to maintain the status quo and implement some aggressive strategies and policies to sort it out.
Sensible response from the industry - focus on the solutions, not blame...
If you want to fix it then lets talk broad base/ multi party solutions - not default to finger pointing and avoidance
Will be interesting if it gains any traction or be biffed to the 'to-hard basket' for the next housing minister
"............ politicians, policymakers and experts need to come together to discuss what can be done on housing and come up with binding recommendations on the way forward"........here's an idea, why don't these people who are coming together to discuss housing etc, only own one (1) house per family/individual and not work for a bank in any form, then at least we MAY be able to get past these long entrenched "VESTED INTERESTS"
A banker economist makes suggestions, but surprisingly none that involve the bank having to do anything.
He wants to make housing more affordable but does not make the obvious solution, which would of course involve lower prices and affecting borrowers and the bank's security, the amount of borrowing of which the banks set.
Sounds like a cry for help from an out of control system.
But all will be solved tomorrow when the PM declares an official climate emergency.
Yes, and like a Covid type crisis, that is what I think the Govt. would prefer.
If the market crash due to an external event, then like Covid, it wasn't their fault.
JK had the opportunity at the bottom of a recession and did nothing.
Ardern & co are trying to make changes at the top of a wave (of their own making).
Can't see it ending well unless, under the guise of Covid, they use some of that money to try and smooth the ride, to what still will be a rocky end.
More money, the solution, and the problem.
Mate, he's just signaling his virtuousness. I have no issue with the ASB, but as the second largest lender they are one of the largest contributors to, and beneficiary's of, house price increases. Similar to climate change, look, we really care. It's all good, I'm onboard with EV's now. When are we banning ICE cars anyway?
ARRGH
PM on One News:
1) saying they have tried 3 times to change taxation around housing and didnt have public support. Complete cop out. REAL LEADERSHIP means making the tough decisions. Labour has the mandate - get on with it.
2) saying they will legislate a climate change emergency. NZ is 0.17% of global GHG emissions - it doesnt matter what we do, except in terms of showing leadership. We have a housing crisis but is the PM willing to declare it an emergency - No.
a) Population based strategy aimed at maximising total welfare (wellbeing) per capita growth, i.e. take account of the gdp/capita growth + externalities
b) Massive fiscal stimulus by government to build low income housing where there is no developer profit.
c) Fix/delete the RMA. A full set of national evnironmental standards (based on cost/benefit assessment) to replace district & regional plans stacked as high as the skytower and full of rules planners dont face the costs of. There should be no old town & country style zoning and density restrictions, just environmental standards
d) Introduce a land tax - its hot house prices rising but land prices, and land is a resource.- https://en.wikipedia.org/wiki/Land_value_tax
e) Make Comcom take into account the HHI in decisions and give it the power to break up monopolies & oligopolies - re building supplies.
f) A leader who is willing to make the tough choices. Labour has a mandate - show the courage to make the touch decisions.
Best article in a long time. Identifies that the housing crisis (which was a massive shortage in housing which preceded the house price explosion) was caused by a far too rapid immigration policy. Most of the immigrants were not involved in the construction or medical fields. Too many graduate students who went onto to work in restaurants, bottle stores and uber driving.
Strategy - The execution of a plan to achieve a long term objective. OZ and NZ are now carrying significant amounts of private debt. Most of this debt is in housing and the big jump up started when these countries created a free trade deal that allowed their housing to be traded internationally. To compete with cashed up foreign buyers local buyers borrowed. It continues now through inept RB and government policy and the realization they cannot let it go.
Well economic weakness and debt go hand in hand. Any country in a strong position will be trying to buy up the monopoly board. Easy if countries in debt also have their economic eggs in a single economic basket, and that basket is held by the foreign power who has just passed go and looking to capitalize on a very strong position.
Those moves have taken on an ominous tone in OZ. The foreign power has stopped buying from them while at the same time increasing purchases from NZ. Divide and conquer is another valid strategy. Let's see if NZ comes out and condemns the foreign power in favour of its traditional ally. I think not... remember we also have debt.
So OZ will be picked off and bend to the will they cannot resist.
Which just leaves NZ alone in the South Pacific. In debt, beholden and with a huge fertile landmass and small population. Will the US come to the rescue... maybe, maybe not. But if I had just passed go, I might fancy my chances. Wow .. who first drove up the property prices? Who bought all our stuff... enabling us tor drive them up even more...
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