There is a shortage of affordable (and habitable) housing in New Zealand, particularly in popular areas like Auckland, Wellington, and Central Otago. And it is reaching crisis point.
There is consensus now that “something needs to be done” and that the government has a role to play. There are three issues:
Houses are too expensive generally relative to most people’s income; to rent or to buy.
There are not enough houses available, in some places, for people to make their permanent home.
And there are too many people and/or companies wanting to buy houses as investment properties.
Some think building more houses is the answer, either the state or private developers. Some think making more land available to build on is the answer. Some think high-density housing development is the answer.
All are part of the solution. But all focus on one part of the problem – increasing the supply of housing. All will only work if the demand for housing does not increase faster than the supply of new housing.
Unfortunately, demand for property is no longer relative to the number of people wanting to somewhere to live. As long as property is seen as a safe and lucrative investment and we allow investors from all over the globe to buy our property, the demand will not go away. Building new houses is only likely to increase demand. Capital gains can still be made even if no one ever lives on a property.
Former National Party Leader Don Brash says house prices must fall by 40%. He’s right. This must happen. Perhaps 40% is too conservative for Auckland and Central Otago. But the fall in house prices will need to be carefully managed so that it doesn’t impact on the average New Zealander.
It is vital to avoid a repeat of the 2008 financial crash in the US where people on low and middle incomes handed their houses over to the banks and walked away because they couldn’t afford the mortgage payments. Selling wasn’t an option because the mortgage payments were far more than the house was worth.
So the government will need two plans. One to reduce demand, and one to soften the blow of the resulting drop in house prices for people on low and middle incomes.
The first plan could involve building more houses. But it should also involve restricting who can buy houses (and land) to people who actually want to live here – permanent residents. And it should involve introducing measures to deter anyone from buying property solely for speculation. A fairly substantial capital gains tax on everything but the family home would do the trick.
The second plan should be a way to deal with the fall in property prices so that people on low and middle incomes mortgaged to the hilt do not find themselves saddled with a crippling debt that is now out of all proportion to the value of their home.
The government must be prepared to step in where there is genuine hardship and buy mortgages from the commercial banks so that they can be renegotiated to a level commensurate with property values. Kiwibank could be a vehicle for this. It would be expensive, but so are building houses and subsidizing rents to private landlords. And those expenses, along with a whole lot of others, such as health costs and increased demand for social services, will keep on rising if nothing is done to make houses more affordable.
The government may also need to be prepared top up some of the Kiwisaver schemes so that people’s work-based savings are not unduly affected. Or reimburse savers individually for their losses. There will undoubtedly be work-based pension funds with investments in property in New Zealand.
This is scary stuff. But the alternative is many more people, even working people, living in poverty in cars and on the streets. New Zealanders have, thankfully, given a strong message that they are not prepared to tolerate that. The ball is now in the politicians’ court.
Who has the courage to incur the wrath of local and international property investors by taking the necessary steps to make sure every New Zealander has a warm dry affordable home to call their own?