Enemy of affordability

March 20, 2014

Greens like to think they’re friends of the earth.

They aren’t so keen on earthlings, and in their eyes some earthlings are even less equal than others as this exchange during question time yesterday shows:

4. Dr RUSSEL NORMAN (Co-Leader—Green) to the Minister of Finance: Will the Government propose any measures to restrict the sale of New Zealand farmland or residential land to foreign companies or persons?

Hon BILL ENGLISH (Minister of Finance): We are certainly not going to restrict Australians from buying homes after they migrate to New Zealand. The Government has already restricted overseas investment in sensitive land and residential land. We made changes to the regulations in 2010, which were reflected in a directive letter to the Overseas Investment Office. We believe these changes struck the appropriate balance between ministerial flexibility to consider a wider range of issues when assessing overseas investment and, at the same time, providing clarity and certainty for potential investors. I would note that under this Government the amount of sensitive land approved for sale to overseas buyers has been less than half what it was in the last 5 years of the previous Labour-Greens Government. I would also note that the OECD assesses our overseas investment regime as now one of the more restrictive in the developed world.

Dr Russel Norman: Does he consider that China has any lessons to teach New Zealand regarding foreign ownership, given that China protects its economic interests through restricting land sales to foreign buyers?

Hon BILL ENGLISH: The member may be more familiar than I am with the tenets of communism, but in China private individuals did not own land until recently, only the Government did, so even the Chinese could not buy land in China. But I am a bit surprised to find that the Greens only ever get this excited about foreign ownership when it involves the Chinese, who happen to have a much lower number of consents than Australia, the UK, Germany, Switzerland, and, I think, Sweden.

Dr Russel Norman: Does he have any concern that more than one in 10 homes in Auckland is purchased offshore and that, according to BNZ economist Tony Alexander, this figure is set to only increase?

Hon BILL ENGLISH: I know that the member has been conducting his own investigation into these issues by visiting the home of Kim Dotcom, a well-known foreign investor in Auckland real estate. I cannot confirm the member’s one in 10 number. The BNZ survey that I saw said that about six houses in every 100 are foreign-purchased and about a quarter of those are being purchased by the Chinese, which means that 1.5 houses in every 100 might be being purchased by people whom real estate agents think are residents of China.

Might is the operative word.

If the property isn’t big enough to require Overseas Investment Office approval, the nationality of the purchaser isn’t recorded.

And the fact that some people doesn’t look either Maori or Pakeha doesn’t mean they aren’t New Zealanders.

Dr Russel Norman: When will he and his Government consider there is a problem—will it be when one in five homes is purchased by offshore buyers, or will it be when one in four homes is purchased by offshore buyers? At what point will he acknowledge that there is a problem?

Hon BILL ENGLISH: We do not have the same problem about buyers being foreign as the Greens do. What we have a problem with is the very high cost of housing in New Zealand for New Zealanders. And all the analysis shows that the fundamental driver of the high cost of housing is not the Greens’ friends from China; it is the Greens’ friends in the planning departments of our city councils who insist on blocking new development of new housing. So the Greens are a much bigger enemy of the affordability of housing in New Zealand than the Chinese have ever been.

Restrictions on the supply of housing is a far bigger enemy of affordability than foreign buyers.

Dr Russel Norman: Does he consider that an increase in interest from offshore buyers in purchasing residential property in Auckland is increasing the price of housing for New Zealand homebuyers, or does he think that this big increase in demand from offshore is having no effect— that it is a special kind of market where a big increase in demand has no effect on prices?

Hon BILL ENGLISH: It is not obvious that there is a big increase in demand from offshore buyers. There is some anecdotal evidence that that is the case, and I know that that is certainly believed by some people, but it is yet to be established. The fundamental driver of the increase in housing is restrictive planning policy, which means that when there is more demand—whether it is foreign or, in this case, New Zealanders who have stopped migrating and are staying home and more people who are arriving in New Zealand as migrants—and those factors of demand are rising, the supply cannot react to it. All around the world restrictive planning laws mean higher prices and more volatile prices, and the Greens back that kind of policy. They should be backing the Government on getting rid of that sort of policy if they are really concerned about locking low and middle income New Zealanders out of the housing market.

Dr Russel Norman: Does he agree with Auckland house auctioneer Adam Wang that our ambiguous laws around capital gains tax are assisting the boom in the foreign buy-up of our

housing stock, and does he have any plans to deal with the fact that the capital gains tax exemption in New Zealand is part of the problem driving up house prices?

Hon BILL ENGLISH: All of those issues have been looked at by various inquiries, by the Productivity Commission, and by policy advisers, and it is possible that any one of them has some influence on the price. This Government, though, has focused on the biggest influence, and the most pervasive one, and that is restriction of supply. It is hard to understand why the Greens support housing planning policies that have the effect of driving up the wealth of the leafy suburbs at the expense of middle-income and low-income New Zealanders. I think that if the Greens were really concerned about equity in New Zealand and affordability of housing, they would be supporting the Government’s policies, not the Labour Party’s policies.

Restrictions on supply help those already on the housing ladder.

Labour and Green policies for higher taxes, will not fix that and their policies which will lead to higher inflation and interest rates would reinforce them as enemies of affordability.

Auckland exodus sensible move for retirees

January 13, 2014

Retirees in Auckland are doing their sums and finding they add up to a better answer outside the city.

A tidal wave of cashed-up retired Aucklanders will help drive up property prices in Mount Maunganui and Papamoa, a leading city real estate agent has predicted. . .

John O’Donnell, who owns LJ Hooker’s branch in the Mount and Papamoa, . . . said half of the people coming through their doors were baby boomers aged over 60. They were people taking their life’s savings out of Auckland and building or buying in the Mount and Papamoa.

“It is the start of a tidal wave of people coming out of Auckland.” . . .

Selling up and settling elsewhere is a sensible move for retirees if they don’t have strong family or other ties to Auckland.

It could put pressure on other hot-spots but there are plenty of other places for retirees to settle.

An Oamaru real estate agent told me she’s seeing some Aucklanders down this far.

They are able to sell a modest home up there, pay off any mortgage, buy a much better property down here and have a good sum of money left over for a comfortable retirement.

The exodus will take some of the heat out of the Auckland housing market which will be good not just for people trying to buy houses there but for the rest of the economy.

Interest rates will rise

December 12, 2013

The Reserve Bank has kept  the official cash rate at 2.5% but clearly signalled an increase is likely next year.

Reserve Bank Governor Graeme Wheeler said: “Growth remains moderate but mixed for New Zealand’s main trading partners. Nevertheless, export prices for New Zealand’s main commodities, and especially dairy produce, have continued to increase.

“New Zealand’s GDP is estimated to have grown at over 3 percent in the year to the September quarter and the expansion in the economy has considerable momentum. New Zealand’s terms of trade are at a 40-year high, household spending is rising and construction activity is being lifted by the Canterbury rebuild and the response to the housing shortage in Auckland.

“Continued fiscal consolidation and the high exchange rate will partly offset the strength in domestic demand. The high exchange rate is a particular headwind for the tradables sector and the Bank does not believe it is sustainable in the long run.

“House price inflation is high in Auckland and other regions due to the housing shortage, and demand pressures associated with low interest rates and rising net inward migration. Restrictions on high loan-to-value mortgage lending, introduced in October, should help slow house price inflation. Data to date are limited on the effects of these restrictions. We will continue to monitor outcomes in the housing market closely.

“Annual CPI inflation increased to 1.4 percent in the September quarter and inflation pressures are projected to increase. The extent and timing of such pressures will depend largely on movements in the exchange rate, changes in commodity prices, and the degree to which momentum in the housing market and construction activity spills over into broader cost and price pressures.

“The Bank will increase the OCR as needed in order to keep future average inflation near the 2 percent target midpoint”.

Yesterday’s announcement by Fonterra that it was holding the forecast milk payout and reducing the dividend might have taken a little heat out of the market, but there are other pressures on inflation, not the least of which is house prices.

The bank removed restrictions on low loan to value ratios for the construction of new homes earlier this week after it became aware that this policy would reduce the housing supply which is one of the factors pushing up prices.

Restrictions remain for loans for existing houses and this is sensible.

If people are stretched to get and service a loan at current historically low interest rates even a small increase could over-stretch their budgets.

With only 10% equity in their properties a small change hey could well end up losing that and if forced to sell would not only lose their homes but still owe money.


LVRs are working

November 16, 2013

Christian Hawkesby analyses the impact of the Reserve Bank’s tougher Loan to Value Ratios and concludes:

In conclusion, in the short-term mortgage approvals and housing sales should provide the best reading on the impact of the LVR restrictions.  There are early signs that the LVR restrictions are beginning to bite.  We believe this will continue.  Furthermore, over the long-term we expect housing affordability to provide another restraint on house price inflation.

House prices are a function of the relationship of between supply and demand.

Requiring more people to have a bigger deposit before they can borrow will dampen demand, at least in the short term.

A longer term solution requires increasing the supply, or shifting demand from places like the more attractive areas of Auckland to other places where there’s fewer people competing to buy and prices are lower.

Patience might pay

October 11, 2013

When an issue becomes a big issue emotion often clouds the facts.

This has happened with housing affordability and the general acceptance that it’s a problem if first home buyers can’t by the type of house they want at a price they can afford.

Trans Tasman brings some much needed cool reason to the debate:

There are a few things – awkward, intractable and occasionally unpleasant things – being forgotten in the current wave of handwringing about house buying. The first and most basic is supply and demand: if supply of something drops, or demand for it rises, the price will generally go up. If they happen at the same time – as with the Auckland property market right now – silly things happen.

The last housing boom/bubble wasn’t driven by supply issues. In fact the construction sector was dashing from site to site like water trucks in the Sahara. There was also hell of a lot of speculative trading going on – a top tax rate of 39% and tax breaks for depreciation and LAQCs will do this for you. This vanished in 2009-10 but so did construction. Residential property investment is now 23% below 2007 levels.

A final, crucial and awkward truth. Young Kiwis who can barely scrape together a deposit right now are better off waiting. Not only interest rates but also inflation are their lowest for 50 years and will rise over the next three years. Insurance and rates – which tend to catch first home buyers by surprise – are rising by 10% or more. And a house-building programme of the kind being launched right now could see house prices fall.

By 2015-16, we could easily be seeing negative equity plus a rash of mortgagee sales as today’s cheap fixed rate mortgages end and jump a couple of percent. All the new Reserve Bank restrictions require is the scraping together of a larger deposit. It ain’t such a bad idea at the moment.

Patience is a virtue and it might well pay when it comes to house buying.

Interest rates won’t stay as low as they are now and other costs will rise which could make it very difficult for people to service large mortgages.

If they’ve borrowed most of the money for their purchase it will take only a small drop in property prices to push them into negative equity.

It’s not that long ago that most people wouldn’t have dreamed of going to a bank until they had a sizeable deposit.

A return to that mind-set would take some heat out of the market and make eventual purchases much more secure.

More is more

October 10, 2013

Labour is complaining that the promise of thousands of new homes won’t mean much for first home buyers:

Ten special housing areas were launched in the city yesterday as part of an accord between the council and the government.

More than 5000 homes may be built on the 470 hectares of land but Labour Party housing spokesperson Phil Twyford says they will do little for affordable housing. . .

He says that’s because only 10% of the new houses built will have to be “affordable”.

More houses is more houses at any price.

The problem in Auckland is that the demand for houses far outstrips the price.

To solve that you either have to increase the demand or increase the supply.

Building more houses will help do the latter and it doesn’t matter that few will be at the lower end of the market.

Some of them will be bought by people on lower rungs of the property ladder who are in a position to step up and that will free the houses they sell for some of those not yet on the ladder.

It will take a lot more than 5,000 homes to solve Auckland’s housing problem.

This development is a start at any price and it’s better to have a range of prices rather than all cheap houses which would create a ghetto.

LVRs introduced for good reason

October 3, 2013

Reserve Bank Governor Graeme Wheeler explains why it was necessary to impose lower loan to value ratios on banks:

 Many New Zealanders consider purchasing a house to be a rock solid investment, and assume that house prices will continue to rise steadily, having never seen a bear market or experienced rapid rises in mortgage rates.

Over the past 25 years, however, many wealthy countries have experienced periods of substantial decline in house prices.

Falling house prices erode homeowners’ equity, while mortgage lenders experience losses on their loan portfolios. The resulting stress in the financial system can have long lasting adverse effects on the economy. For borrowers, it can mean years of spending cut-backs to rebuild savings. The greatest impact is on borrowers, often first-home buyers, who recently entered the market with the least equity. In the United States, real net household wealth for the median household fell 39 percent from 2007 to 2010, and a quarter of America’s mortgage holders owed more on their houses than what their houses were worth.

Our concern is that excessive increases in house prices in parts of the country, if unchecked, pose increasing risk for the financial system and the broader economy. High and rising house prices increase the risk and potential impact of a major correction in house prices, and consequential loss to lenders. In a severe downturn, such losses would be expected to significantly reduce banks’ willingness to lend. Similar views about the risks from our overvalued housing market are expressed by the IMF, OECD, and the major international credit rating agencies.

New Zealand’s house prices are expensive, based on international comparisons of house prices relative to rents and to levels of household income. And our household debt levels relative to disposable income – having doubled over the past two decades – are also very high.

Could New Zealand experience a sharp fall in house prices? While not anticipated, our economy is not immune to such risks. The world economy still faces major challenges and, if global growth slows markedly, or if China’s financial system experiences major difficulties, it would quickly feed into the New Zealand economy and housing market.

House prices are rising rapidly in Auckland and Christchurch for two reasons: housing shortages and easy credit. It is critical that issues around land availability, zoning restrictions and high building costs are resolved and that the housing targets in the Auckland Accord are achieved. It is also important that credit expansion is restrained to be more in line with housing supply. Restricting lending to borrowers with low deposits can help reduce the upward pressure on house prices, especially as banks have been competing aggressively for borrowers with low deposits – with this borrowing accounting for 30 percent of new mortgage lending.

Some suggest that loan-to-value restrictions should be applied regionally, especially around Auckland, or that we should exempt buyers of lower-priced houses.  We considered both options.  However, regional restrictions would be hard to administer and would shift housing pressures outside wherever the boundary is drawn.  Exempting low-priced housing would be a recipe for rapid increases in the cost of such housing. Broad exemptions to other groups such as first home buyers would substantially undermine the effectiveness of the restrictions in reducing house price inflation.

While new for New Zealand, such restrictions have been introduced in 25 countries, and are currently being deployed in Canada, Israel, Korea, Norway, Singapore, and Sweden. Most countries adopting such restrictions prohibit high loan-to-value lending. We have opted for a more flexible approach, which still allows banks to do some high loan-to-value lending. Nor should such moves be seen as permanent. Restrictions will be removed when there is a better balance in the housing market and less risk that their removal will reignite high house price inflation.

While the Reserve Bank’s mandate is to promote financial stability, there are clear implications here for housing affordability. Over the next two years interest rates are likely to rise in order to restrain an expected increase in broader inflation pressures. We currently expect that the official cash rate could increase by 2 percent from 2014 to the beginning of 2016. This could result in interest rates on first mortgages of 7-8 percent. If the loan-to-value speed limit is unable to slow house price inflation, larger increases in the official cash rate would be required.

We are keen to see house price inflation moderate significantly and, in doing so, reduce the risks to the financial sector and the broader economy. Speed limits on low deposit lending are designed to help achieve this. Loan-to-value restrictions are expected to give the Reserve Bank more flexibility as to when and how quickly we have to raise interest rates, but the more fundamental solution to reducing pressure in the housing market lies in addressing the issues around housing supply.

We had good equity, well over 50%, in our farm until the ag-sag of the mid 1980s hit.

Stock prices and land values plummeted, North Otago was plagued by drought and to compound our problems inflation and interest rates soared.

At one stage we were paying more than 25% for seasonal finance and our equity had disappeared.

Had the stock firm to which we owed so much had pushed us to sell we’d have been left with nothing but debt.

Fortunately for us there was safety in numbers and few farm sales were forced. We eventually farmed our way out of our problems and the policies the opposition still describe as “failed” dealt to inflation and interest rates.

The experience taught us some very valuable lessons which those criticising the Reserve Bank’s policy, don’t understand.

Labour’s threat to the Reserve Bank’s independence and stated intention to exempt first home buyers from loan restrictions show no concern at all for the stability of banks and the danger of borrowing too much.

Interest rates are very low now. A small increase would add a significant cost to servicing a big mortgage, unforeseen costs, which always arise, would put further pressure on budgets, make paying off capital more difficult and increase the risk of losing most if not all equity if property prices fall.

The bank can’t do anything about land availability, zoning restrictions and high building costs but it can address easy credit and it’s doing so to protect the financial system and broader economy.

Labour’s poster-boy would be property mogul

October 1, 2013

The Reserve Bank’s mortgage lending restrictions take effect today limiting the amount of high loan to value ratio mortgages banks can make.

The aim is to take the heat out of the housing market.

It will help protect borrowers from losing all their equity should house prices fall.

It should also keep interest rates down which will also take some pressure off the value of our dollar both of which benefit us all.

The opposition have no interest in any of that good news and Labour found a first home buyer to tell his can’t-buy-now sob story:

. . . Labour leader David Cunliffe met would-be first-time buyer Kanik Mongia, 23, in central Auckland today. . . 

Mr Mongia, an IT consultant was looking at properties in the $400,000 to $500,000 range in south Auckland or Mt Wellington.

“If it’s good enough I could live in it, otherwise it could be an investment property.”

Mr Mongia said he has been looking for four or five months and has enough saved for a 10 per cent deposit. . .

Labour think we should compromise the Reserve Bank’s independence because a 23-year-old wanting to buy a half million dollar house now has to save a 20% deposit before he can get a mortgage?

This isn’t a family in need of a home, their poster-boy is a would-be property mogul.

The story doesn’t say how long he’s been working. If he went to university it  might only be a couple of years, if he didn’t it could be five. Either way saving $50,000 is to be commended but that doesn’t make his case a good one to criticise the LVR policy, especially when he might be using the house an investment property rather than a home.

. . . But Mr Key this afternoon told reporters he had seen Mr Cunliffe “parading around” with first home buyers, but Mr Mongia should bear in mind that interest rates were currently very low which would make a big difference in what he paid for a house.

“Under National they’re paying $20,000 a year less in interest on their mortgage than they otherwise would have done under Labour.”

He also pointed out Mr Mongia had suggested he may buy a home as an investment property.

“Well I hate to tell them but the person they’re standing next to – David Cunliffe – is wanting to put a capital gains tax on that very property they were talking about buying.” . .

A CGT has had no impact on house values anywhere else, it won’t here especially when family homes are exempt.

Labour is using this issue to criticise the government but it’s reserve Bank policy not government policy and the government – correctly – values the bank’s independence.

Mr Key also said it would be wrong for the Government to interfere with the Reserve Bank.

“Overall, we’ll need to let this thing run. The Reserve Bank has the independence to do that and the Government shouldn’t interfere on that front.

The bank’s independence is a major contributor to the stability of our economy. Labour’s threat to influence the bank is also a threat to the economy. It would push up interest rates which would make it harder for people with, or wanting to have, mortgages.

It would also take the lid off inflation and push up the value of the dollar which would hit export income.

There’s a clear choice here – lower interest rates and inflation and no capital gains tax under National or higher interest rates and inflation and a CGT under Labour.

The former will do much more to make housing more affordable than the latter.

House ownership has never been easy

September 30, 2013

The Herald has a story on MP’s buying their first houses.

Two points stand out – prices were lower but interest rates were much higher than they are now; the first step on the housing ladder often has to be modest.

Housing Minister Nick Smith:

. . .  bought his first home, a former state house in Riccarton, Christchurch, in 1985 while he was a 22-year-old at Canterbury University. He paid $24,000 for it, just before interest rates “went through the roof”, hitting 24 per cent.

“As a consequence, I spent the holiday building a new room on to it so I could get a new flatmate to pay the mortgage.

“I confess I was capitalist and I thought the economics worked in getting into the property market early, getting a heavy mortgage and trying to service it with four flatmates,” the minister said. . .

Auckland mayor Len Brown:

. . . recalls the difficulty of securing finance, and the cost of it, with interest rates of up to 23 per cent. “It was terrible. I don’t know how anyone ever owned any homes at all in those days,” the mayor said.

He believed the challenges in getting finance meant it was as difficult 34 years ago as it is now for first-home buyers. Back in the late seventies, “there was probably more housing available at relatively better prices”.

“Now it’s difficult because of the way prices are generally and because you’ve got to put together a 10, 15 or 20 per cent deposit.

“But the one thing I will say is if you’re prepared to start at a practical and realistic level in a community that you can afford, then you can still get a house, whether it’s an apartment at $200,000 or a standalone house at $350,000 to $400,000. That’s still available for you but you can’t afford to be too choosy.”

Justice Minister Judith Collins makes the same point:

. . . With interest rates around 20 per cent, it was “a huge struggle” to make payments.

She accepts it is difficult now, and says first-home buyers should be prepared “to buy a place that needs to be done up and to have a first home that may not be your last home”.

“I moved into a two-bedroom flat, I didn’t move into a five-bedroom mansion.

“What you have with your mum and dad is probably not what you’re going to get for your first home.”

It has never been easy to buy a house – high interest rates on lower mortgages were as least as difficult to service when these people were paying off their first homes as lower interest rates on higher-priced houses now.

Then we have Green co-leader Metiria Turei:

. . . She and her family left Auckland in 2002, partly because of the cost of housing on an MP’s salary.

She says there were good homes available in Dunedin for $140,000 to $180,000 when she was house hunting.

But her bank wouldn’t lend her less than $200,000 as she had no deposit and had to take out a 100 per cent mortgage.

She couldn’t cope with the cost of housing on an MPs salary and had no deposit saved?

That is a very sorry reflection on her financial management and a chilling reminder of how dangerous she could be in government.

People who can’t manage their own money shouldn’t be taking and spending other people’s.

What housing crisis?

September 22, 2013

While would-be home owners in some parts of Auckland and most of Christchurch are worried about housing prices, here’s what you can get for an asking price of $468,000 in Oamaru:


This substantial, quality character home perched overlooking the picturesque Oamaru historic precinct, ocean and coast, retains it’s many fantastic original features: magnificent rimu and embossed ceilings; polished floors throughout; 3 large bay windows; abundant leadlights; wooden balustrade staircase; 3 tiled fireplaces and a stunning wetback iron/copper coal range – all working; high ceilings; arches – genuine character abounds.

A formal living room, large dining, family room (or 4th bedrm/study/library) with storeroom, large single and 2 dble bedrooms – the master receives the sunrise sea vista and opens into a sunroom, stepping out to the tiled balcony commanding a glorious panorama of the coast over stone steeples and facades of Oamarus’ heritage township. Built in wardrobes and plenty of storage throughout. 2 toilets, shower, shower over clawfoot bath.

The original enclosed veranda has been converted to a modern kitchen – facing views and sun, with a recent addition of a laundry and 2nd bathroom. Step out onto a large sheltered, sun drenched patio/terrace complete with ‘garden house’ nook to enjoy the trees and sea view.

The 1012m2 section boasts heritage roses, a charming private back garden rambling amidst fruit trees, garden shed, vegetable plots, rich soil, hedges and abundant vegetation, while the more formal front yard is flanked by not one but two Oamaru stone garages.

A few minutes walk will take you to Oamarus’ amazing Victorian precinct, Botanic gardens, marina, supermarkets or enviable MainStreet amenities and attractions.

New Daikin heat pump and alarm system, Sky dish. House size approximately 240m2
‘Coll Croft’ 24 Wansbeck Street, South Hill, Oamaru.
A truly amazing opportunity.

Oamaru offers fantastic lifestyle appeal and incredible value, being recently voted NZ’s ‘sharpest’ town! Find out more http://www.visitoamaru.co.nz.

That’s still a lot of money, but there are other more affordable options such as this one with an asking price of $189,000:

• Open plan kitchen/dining
• 3 double bedrooms
• Sep. lounge & study
• Single garage & workshop
• 1012m2 section with offstreet parking
• Sunny South Hill location

A spacious section with options: plants & pets, a playground or parking all those vehicles. . .

In between those is this brand new house with an asking price of $385,000:

We don’t have a housing crisis, we have a supply problem in a very few areas.

Firm on fraud frees up 1000 houses

August 19, 2013

Housing New Zealand’s firm line on criminal offending and dishonesty has freed up 1000 houses since the Government changed its policy in 2008, Housing Minister Dr Nick Smith said.

“State houses are heavily subsidised by other taxpayers and tenants abuse this support when they are dishonest about their living situation or income, or use the home for criminal activity like drug manufacturing. We need to take a firm approach to such abuse to be fair to the vast bulk of honest tenants, to ensure public money is supporting improved social outcomes, and to ensure our state houses are available to those most in need of housing support,” Dr Smith says.

“Housing New Zealand expanded its fraud unit and started taking a firm approach on the change of Government in 2008. This has seen the number of tenancies terminated for fraud or criminal offending grow from 42 in 2008/09 to 292 in the year ending of 2012/13. A total of 1001 tenants have been evicted as a result of fraud investigations since the new approach was adopted.

“Housing New Zealand also takes a zero tolerance approach to state houses being used to manufacture and supply drugs. Four houses were used as meth labs in the 2012/13 year, as compared to seven in the previous year. It is an appalling breach of faith for tenants, generously provided with a home by other taxpayers, to then use that home to manufacture and peddle drugs. I am hopeful that the decline in the number of state houses being used as drug houses is a sign that the message of zero tolerance is getting through.

“The work by Housing New Zealand investigators resulted in 129 criminal convictions and the identification of $11 million of rent subsidies tenants were not entitled to.

“While the vast majority of Housing New Zealand’s 62,000 tenancies on income-related rent are in legitimate need of housing, a small minority are rorting the system. I make no apologies for the hard line taken to make sure state housing is freed up for those who actually need it.

“Housing New Zealand investigations for fraud arise from tenancy manager observations, anonymous tip-offs, information from other government agencies and inconsistent information from tenants themselves. 22 per cent of investigations result in no further action because of honest misunderstanding or mistake, insufficient information to prove dishonesty, or other exceptional circumstances that negated what appeared fraudulent.

“Housing support fraud will become more difficult with the Government’s social housing reforms that bring together the administration of financial support for housing and welfare. Many of the people defrauding Housing New Zealand were also committing benefit fraud and it makes sense for both sorts of financial assistance to be considered together.”

A thousand out of 62,000 is not a large number but state houses are supposed to be for those who need them, not those rorting the system or indulging in criminal behaviour.

Last week Victoria University accounting and commercial law associate professor Lisa Marriott said that Inland Revenue was more likely to write off unpaid tax than the Ministry of Social Development  was to write off welfare debts.

MSD would often keep welfare debts on its books, sometimes until people died or retired.

Tax debt totalled nearly $6 billion, while welfare debt was about $1b, she said.

“There appears to be no basis for treating debtors to the two government agencies differently,” Marriott said.

The study indicated tax debtors got off more lightly, she said.

Inland Revenue was more likely to negotiate with debtors and collect core tax, and write off penalties and interest, Marriott said. . .

Associate Social Development Minister Chester Borrows said those claims were misleading.

“The Ministry of Social Development (MSD) has a duty to take care with taxpayer money. When they find evidence someone has fraudulently taken money they are not entitled to, they will prosecute, and make no apologies for that,” says Mr Borrows.

“To describe this as being particularly ‘punitive’ is simply wrong. It implies we should ignore welfare fraud, and shows a basic ignorance of the wide range of support MSD provides to New Zealanders.”

Mr Borrows singled out claims that more is spent chasing welfare fraud than tax fraud as demonstrably false.

“This year IRD has a budget of $142 million to enforce tax obligations. This is more than quadruple MSD’s collections and integrity services budget of $29.8 million.”

He also pointed to the use of penalties and interest to illustrate the different approaches taken by MSD and Inland Revenue.

“To focus on penalties and interest written off by Inland Revenue ignores the very different way IRD and MSD operate. Inland Revenue has a tough regime of penalties and interest, whereas MSD only uses penalties in rare cases where dishonest behaviour needs to be sanctioned by a criminal prosecution is not appropriate.

“The numbers clearly illustrate this. In 2011/12 MSD imposed around $144,000 of sanctions on 164 cases – a stark difference to the more than $600 million of penalties and interest IRD imposed in the same year.” . . .

Revenue Minister Todd McClay says there can be good reasons to write some tax off.

“Businesses that are finding it a little bit difficult to meet their obligations can stay in business and keep employing New Zealanders,” says Mr McClay.The Minister says comparisons between the two Ministries are unhelpful, partly because there are under half a million kiwis on benefits, but more than 7 million tax customers. . .

Fraud is fraud and taking other people’s money is wrong. But simple comparisons between the way the MSD and IRD treat debt is misleading.

The $1b written off by MSD will be a much larger percentage of benefit payments than the $6b written off by IRD is of tax payments.

Policy for the few

August 1, 2013

Labour’s housing policy restricting the purchase of houses to New Zealanders and Australians is policy for the few.

It is dog-whistle politics for xenophobes and for those wanting to buy homes in the few areas where high prices make it most difficult.

In spite of what the party would have us believe, Invercargill is not one of those.

Photo: John Key is in denial if he seriously believes offshore speculators in the housing market are not a problem worth tackling.

Labour has abandoned the provinces and obviously doesn’t know what’s happening in the south.

House prices aren’t out of control and there is no housing crisis.

There will be a lot more people in Invercargill keen to see the value of the homes they own go up to increase their equity and the value of the investment, or who are wanting to sell for a reasonable price than there are first-home buyers struggling to find something they can afford.

There will be a lot more people in the rest of the country – yes even Auckland and Christchurch – who feel the same way.

Run-away house prices aren’t good for the economy and do make it difficult for people to get on the first rung of the property-owning ladder.

But they aren’t a nation-wide problem and where they are a problem restricting sales to New Zealanders and Australians will make little if any difference.

The problem is one of supply and demand in a very few areas and that will only be solved by freeing up land for development and building lots more houses.

Maori Party out-xenophobes the xenophobes

July 30, 2013

If Labour was trying to out-xenophobe the xenophobic New Zealand First and Green parties with its housing policy it has been trumped by the Maori Party.

The Maori Party has labelled Shearer’s new policy aimed at restricting foreigners from purchasing houses as ‘lip-service’, and has challenged the Labour Party to commit to real action to protect the assets of Aotearoa by extending their policies to prevent the sale of land and strategic assets into all and any foreign ownership.

“The Maori Party have a clear policy on land ownership, we must protect and preserve our land to keep it from falling into foreign ownership. The Labour Party’s housing policy, which would restrict foreigners from purchasing houses, is nonsensical as it discriminates against which foreigners it exempts and does nothing to protect the asset of true value to the people of Aotearoa – the land.”

“On one hand the Labour Party want to limit the purchase of residential property by overseas investors, but on the other they promote and support the free trade agenda which is entirely about easing rules for foreigners to do business, and invest in New Zealand assets.”

“There are other ways to do business with countries overseas which protect the rangatiratanga of New Zealanders over our resources. We think that both the Labour Party and the National Party have a duty to look at how we can protect our resources before they advance investment agreements such as the TPPA.” . . .

There are lots of ways to do business with other countries but if we want economic growth here, with the social development that fosters, we need investment.

Our poor savings record means we don’t have enough spare money ourselves which leaves us with two choices – we can borrow from other countries or welcome foreign investment.

Inwards investment should pose no more threat to the rangatiratanga of New Zealanders over our resources than investment from within.

Whoever owns our land or other assets is subject to the same laws which govern what they can do with them as everybody else regardless of where they come from.

Without foreign investment we’d go backwards.

That would hurt the poorest people, among whom are a disproportionate number of Maori, the most.

Does Labour have a research unit?

July 30, 2013

Political parties get public funding for parliamentary support services.

That could and usually does include researchers.

They’re the people whose duties ought to include looking carefully at policy proposals.

Does Labour have a research unit and if so was the xenophobic policy barring all foreigners except Australians from buying houses examined by it?

If so why didn’t they see two large fish hooks spotted by a journalist and a lawyer?

Not long after the policy was announced for Rob Hosking pointed out the numbers of non-resident “foreigners” owning houses David Shearer was quoting included ex-pat New Zealanders.

Shortly after that Stephen Franks pointed out the policy almost certainly breached the Free Trade Agreement with China:

. . . Under Article 138 of the NZ China FTA (National Treatment)  all investments and activities associated with such investments made by investors of both parties must be treated, “with respect to management, conduct, operation, maintenance, use, enjoyment or disposal”  no less favourably than investments of its own investors. The list does not include “acquisition” or similar words.

So under that provision a Chinese house buyer must be treated the same as a New Zealander after acquiring residential property, but the protection does not extend to prospective buyers. Whew for Labour!

But wait – another Article (the most favoured nation clause) commits New Zealand not to pass law that discriminates against Chinese investors in comparison with other overseas investors (such as Australians).

Article 139 requires that investors of [China] be treated no less favourably than investors of any third country [Australia] “with respect to admission, expansion, management, conduct, operation, maintenance, use, enjoyment and disposal” of investments.

So Chinese would-be  investors do not get direct rights to insist on investor equality but they can’t be treated worse than Australians.

Labour has said Australians would still be allowed to buy residential property under their policy. This would breach Article 139. . .

. . . What would happen if Labour got the numbers to legislate such a policy irrespective of the FTA? Parliament can, after all, legislate contrary to international law.

There would be serious legal, economic and political ramifications. The Chinese government could invoke the dispute settlement procedures in the agreement.  NZ exporters may lose their benefits under the NZ China FTA. NZ’s international standing as a good treaty partner would suffer. . .

The FTA was signed by a Labour government , several members of which are still in the Labour caucus.

What did they have to say about the FTA and Labour’s xenophobic policy?

. . . Their Leader said this evening to NewsTalk ZB’s Susan Wood that his colleagues responsible for the China FTA tell him it was not meant to prevent NZ from barring investment it does not want.

If that was what they meant, it is not what they signed. . .

The sooo boring detail of deals that stitch us up may have eluded the politicians who actually signed them, but until they are properly understood Mr Shearer, stop digging.

Did his colleagues not understand what they signed, or did they understand but fail to explain the fine print to their leader?

Either way it reflects poorly on them.

It also raises questions about the party’s research unit. They’re the ones who are supposed to look at boring details.

Did anyone bother to run the policy past them?

If not why not?

And if so why did the researchers fail to spot the flaws uncovered so quickly by a journalist and a lawyer?

Could it be the research unit is as disillusioned and dysfunctional as the caucus?

Clark part of Auckland housing problem

July 29, 2013

The imbalance between supply and demand for houses in Auckland which is the biggest factor behind swiftly rising prices there didn’t happen overnight.

It has been building for more than a decade and local and central governments should have been addressing the issue years ago before it got this bad.

Who was leading the government for nearly a decade as the prices soared?

Oh yes, Helen Clark and she’s part of the problem of houses owned by foreigners.

Rob Hosking points out:

It’s a mark of how bogus the housing debate has become that Labour’s figures about foreign owners of New Zealand houses almost certainly include former leader Helen Clark and her four houses. . .

Labour says more than 11,000 foreigners own houses here they don’t live in.

. . . What Mr Shearer didn’t say is the figure comes from “non-resident” taxpayers who pay tax on houses they own in New Zealand.

Most of those are ex-pat Kiwis who are renting out property they own here while working overseas.

How could Labour put out a policy so badly researched?

This conversation on twitter explains it:


  1. Shearer’s ‘foreign investor’ figures are mostly expat Kiwis – people like Helen Clark & her four houses [PAID] http://www.nbr.co.nz/article/shearers-foreign-investor-figures-are-mostly-expat-nzers-rh-p-143493 …

  2. .@robhosking This is frustrating. It took you less than a day to find the holes – why aren’t Labour peer reviewing before policy release?

  3. @MeganCampbellNZ Own arse. Both hands. Lack of a GPS navigational device not to mention basic hand/eye co-ordination.

But it gets worse – Labour’s policy is not only based on faulty figures, it also contravenes the Free Trade Agreement with China that was negotiated by the last Labour government.

  1. Lemme get this right. Labour’s housing ban stops expat Kiwis from buying homes here but the FTA lets Chinese buy, along with Aussies? WTF?

  2. @BillyRalston very slightly rushed out policy, you reckon?

  3. @toby_etc I think someone in Shearer’s office had a brain bypass.

  4. @CactusKate2 @BillyRalston @toby_etc C’mon you can’t put this FAIL on the ‘office’. Good politicians ask questions &understand own policy

  5. @MeganCampbellNZ @CactusKate2 @BillyRalston @toby_etc EXACTLY. Blaming minions is what Aaron Gilmores of this world do, not would-be PMs.

Oh dear, faulty figures based on incomplete understanding and no idea about the FTA a Labour government negotiated – is anyone in Labour thinking?

Hat tip: Keeping Stock

P.S. – in case you think I’m guilty of Clark derangement syndrome.The post is to show Labour’s shortcomings – in government for not recognising and acting on the growing imbalance between supply and demand of houses and now for this ill-thought out policy -  not to comment on her investment decisions about which I have no criticism.

How will Labour’s housing policy work?

July 29, 2013

Labour plans to restrict purchases of existing homes to New Zealadners and Australians.

Steven Joyce asks a couple of pertinent questions about it:

Around 37% of Aucklanders born offshore. How would Labour tell the “real” foreigners from the ones that used to be foreigners? #foreignban
And how come Australians would be allowed? Are they not as foreign as “real” foreigners? ‪#‎foreignban‬ ‪#‎panickypolicy‬ ‪#‎notthinking‬
The answer to the second question is that Australia has a similar policy but excludes New Zealanders so Labour’s policy is reciprocal.
But that question leads to another: what if people come to Australia from another country, gain residency and then comes here? Will they be counted as Australian or even more foreign foreigners for the purposes of Labour’s policy?
And what if foreigners want to buy in places where property prices aren’t sky rocketing and might even by declining?

Prime Minister John Key said there was a limited number of overseas-based foreign home buyers.

“So the reality is that not that many people come in and buy properties that aren’t either permanent residents or aren’t going to take up personal residencies.”

There were also ways to “get around that system”, he said.

It was unlikely to be the determining factor in the shortfall in the housing sector, he said.

“The number of people who live overseas who are not going to be permanent residents, who are not going to be citizens…I would have thought is pretty small.”

Housing Minister Nick Smith said it was a sign of how desperate Labour and Mr Shearer had become.

“The oldest trick in the political book, whether it be over crime or unemployment or affordable housing, is always to blame the foreigners.

“There’s no evidence that overseas buyers are having any discernible affect over house prices.”

It was an “unprincipled” policy because it exempted Australia, Dr Smith said.

“They are the largest group of non-resident home buyers.”

One of the biggest faults of the policy is that there are easy ways to circumvent it:

Property commentator Olly Newland said the policy would not work.

Australians would be exempted from the scheme, because of a reciprocal arrangement where New Zealanders were able to buy properties there.

Mr Newland said that made the policy “a bit of a nonsense” because Australians bought the highest number of properties here of all foreign buyers.

“Secondly, of course, any overseas buyer would very quickly find somebody else to buy a house for them here in their name and hold it in trust for them.

“There are a thousand ways to get around it if they want to come here,” he said.

“It sounds good but in practice it just won’t work.”

Like a lot of Labour’s policies it might have superficial appeal but it won’t work.


Making a fuss not a difference

July 27, 2013

Hone Harawira was appealing to his constituency when he protested the removal of state houses from Auckland.

He ended up in court and was found guilty of failing to comply with police instructions.

That might not do him any harm with his supporters but they might not be so impressed when they find out where those state houses were going.Paula Bennett FB (2)Some of those houses have been relocated to Kaitaia where they’re being relocated for families who’ve been living in cow sheds, lean-tos and condemned houses.
Keeping Stock points out:. . . What the He Korowai Trust is doing in Kaitaia is impressive; so impressive that it merits a post all of its own later in the day. But well done to Paula Bennett for pointing out that whilst the MP for Te Tai Tokerau swans around the country at considerable expense to the taxpayer and makes a lot of noise whilst achieving little, others in his electorate are rolling up their sleeves and actually doing things to improve the lot of some of Te Tai Tokerau’s less fortunate.
Harawira isn’t just guilty of failing to comply with police instructions. He’s guilty of making a fuss rather than making a difference to people in need in his own backyard.

Something wrong when houses worth more than farms

June 6, 2013

We spent Queens Birthday with friends in Takapuna.

They showed us modest houses on pocket-handkerchief sections that had recently sold for more than $800,000.

You could buy better houses on bigger sections in many other places for a fraction of that amount.

Our friends also showed us houses which had sold for up to $8 million.

You could buy a good farm for less and something is very wrong with that.

People who already own houses in the city get nervous when measures to increase the supply is mentioned because it could reduce the value of their properties.

But a farming friend who was also with us for a weekend pointed out the value of his farm dropped when the market corrected a few years ago and no-one, except those who owned them and perhaps some of their bankers, was concerned.

Several factors affect the value of property but when Auckland prices are so out of kilter with houses in other parts of the country and with farms, supply and demand are obvious culprits.

That must be addressed not just for the sake of people who want to own property in the city but for the rest of us because of the impact the lack of supply and high prices are having on the economy.

Until the supply is increased and/or the demand drops we’ll all be paying for the problem.

Social housing must do better

May 19, 2013

Finance Minister Bill English didn’t mince his words when giving his view on state houses:

. . . Governments had been “grossly irresponsible” over Housing Corporation not knowing much about its houses or the tenants.

He said the nationalised housing industry “is a disgrace”. . .

Housing Corp was a poor performer and about a third of its housing stock was the wrong size, in poor condition and in the wrong place. That stock was worth about $5 billion and it was $5 b being wasted.

“There are going to have to be changes so we can stop wasting it, and we are going to learn a lot from Christchurch.”

Christchurch had “a half-clean sheet” to restart social housing.

“It is actually pretty shocking the wastefulness and politicisation and the crappy conditions that we make vulnerable people live in. So yes, we are pretty motivated about it because of the benefits for the tenants and the economy and for the Government’s books.

“It’s been a revelation to me that we run this huge asset base with all these vulnerable people and Government hasn’t known about its own tenants, it hasn’t known much about its own housing stock, it’s just been grossly irresponsible.

“We want to get Presbyterian Support, Ngai Tahu, Salvation Army, Housing Foundation involved in supplying these houses and put pressure on our own organisation, which has a record of poor performance.” . . .

The usual suspects are labelling this privatisation.

It doesn’t matter what you call it and who owns the houses, they will still be publicly funded and it wouldn’t be difficult for charitable organisations to do better than Housing Corp.

Too much good land lost to lifestyle

February 5, 2013

Landcare scientist John Dymond says too much high-value agricultural land is being lost to lifestyle blocks.

He’s called for urgent action and national monitoring of rural land fragmentation.

He also wants a national policy statement to prioritise NZ’s best agricultural land for productive uses.

“This is one case where short-term market conditions favour outcomes that are unlikely to be in the nation’s long-term interest,” he said.

In research published recently in the journal of the Royal Society he said in some areas the rate of subdivision of high-class land was very high. Already lifestyle blocks covered 35% of Auckland’s best agricultural land.

There was no reason to expect the demand for rural subdivisions to subside but NZ’s best agricultural land was valuable, limited and a non-renewable resource, he said.

Lifestyle blocks make up 5% of NZ’s non-reserved land and 10% of all high-class land.

Lifestyle block developments had far outstripped loss of land through urbanisation in recent years, he said.

“Fully one-tenth of NZ’s most productive agricultural land has already been converted to lifestyle sections and this has increased rapidly in the last 10 years.” . . .

Real Estate agents love lifestyle blocks because they tend to turn over regularly.

People move out with rosy dreams of a rural lifestyle but soon get sick of the demands the care of their few hectares put on them and the time wasted commuting to work, school, sports and social activities.

Planning rules in some areas aim to retain the rural character by requiring subdivisions to be bigger than the 1000ish or 500ish square metres (quarter and eight of an acre in old money) sections allowed in urban centres.

That tends to turn once productive land into a series of over-grown gardens or pony paddocks.

Three surveys in Western Bay of Plenty between 1996 and 2005 showed up to two-thirds of properties less than 4ha and up to 82% of those less than 1.5ha were not being used for productive purposes.

On only 29% of lots did production increase and these tended to be between three and 8ha in size. . .

Unless the owners have very green figures with a horticultural bent, most lifestyle blocks aren’t nearly as productive as bigger blocks and even if they are they don’t have the economies of scale.

It might be better to allow smaller sections and high density developments on less productive land and keep better land in economic units.

However, when land supply is one of the major factors influencing high prices for houses, the suggestion of restricting the subdivision of productive land on the outskirts of cities wouldn’t be popular.


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