Leilani Farha, UN Special Rapporteur on the right to housing, visited New Zealand and left us with several recommendations including a rent freeze and capital gains tax.
I have yet to see or hear what the visit cost us, but the government that invited her, could have saved all that by asking Steven Joyce who has much better recommendations
. . . Before we embark on another “housing crisis” complete with politically partisan policy ideas that turn out to be mirages (come on down Kiwibuild), let’s have a look at all the housing policy changes that have occurred over the last decade and assess what practical lessons they provide about the New Zealand housing market.
The first is that land supply is hugely important if you want to build more houses. . .
The price of houses is a reflection of demand outstripping supply and one of the reasons for that is restrictions on where people can build and the cost of developing new areas for housing.
The premier case study on land availability is post-earthquake Christchurch. Pre-earthquake the local councils developed a “smart growth” plan where they agreed what land around the city would be released for housing progressively over the next thirty years. Then, alongside the lives tragically lost in the earthquakes, massive numbers of houses were made uninhabitable virtually overnight.
After the quakes, amid dire predictions of skyrocketing house prices, Gerry Brownlee took the radical decision to release the whole thirty years of land at once. There was much sucking of teeth at local and central government, but it was the right call.
As the result of competition amongst developers tens of thousands of Christchurch families were able to use their insurance payouts and reasonably priced new home and land packages to successfully re-establish themselves. Christchurch house prices have since been some of the most reasonable in New Zealand.
The second lesson is about the availability of finance. The Global Financial Crisis dried up bank finance and laid waste to non-bank lenders. The lack of finance for new builds crippled the building market and it took years to recover. That’s a cautionary tale for the Reserve Bank, whose heroic new bank capital ratios will reduce available bank finance, albeit more gradually than previously proposed.
The more banks have to hold, the less they will have to lend and the more expensive the lending will be.
The third, and arguably biggest lesson from the last decade is the now obvious role low interest rates play in driving high house prices, and indeed all asset prices. Every time interest rates have got ridiculously low, house prices have shot through the roof as people bid up prices to the limits of the mortgage they can now afford. This price inflation seems fine if you already own a house, but it perpetuates the wealth gap between those that own houses and those that don’t.
Lower interest rates allow people to afford bigger mortgages, that enables them to pay more for houses and that feeds price increases.
Ultra-low interest rates are driven by governments worldwide contracting out wider economic management to central banks, which then have to compensate for poor microeconomic policies flattening growth. You might not think an oil and gas exploration ban, poor quality government spending, and backward-looking employment policies lead to ever higher house prices, but indirectly they do.
There are lessons out of the rental housing and social housing markets. It is crazy to persist with a single monopoly state housing provider when it has never in its history managed to successfully meet the demand for social housing. It’s also not sensible to let one person have the same state house for life irrespective of changes in their family and personal circumstances. The rapidly growing social housing waiting lists compared to two years ago provide the evidence there. . .
How can a government that cares let a couple or single person occupy a house with multiple bedrooms while families with several children are homeless?
Then there’s the added compliance requirements and accompanying costs that lead to fewer rentals.
That’s not to say never change anything about residential tenancies, but perhaps don’t whack landlords with a dozen negative changes over, say, three years.
To make housing more affordable, the last decade’s experiences tell us to greatly increase land supply, ensure a ready supply of build finance, put less pressure on the Reserve Bank to lower interest rates to keep the economy going, enlist community and NGO help in supplying social housing, and stop treating the vast bulk of residential landlords like they are pariahs. Oh, and forget a more punitive capital gains tax – countries with one of those have the same skyrocketing house prices as we’ve had.
There are valid arguments for a capital gains tax but reining in house prices isn’t one of them.
If CGTs haven’t worked anywhere else, there is no reason to expect they’d work here.
The high cost of housing is a major factor in poverty and all the problems that stem from that.
Why did the government waste money on the UN expert whose recommendations wouldn’t work, when a local one has a much better recipe that would work?