11 minute read
Government v the housing market
Gover nment v the hou Can a minister ever w
Advertisement
There is no silver bullet to the housing crisis, says Housing Minister Megan Woods, but significantly boosting the number of new homes is critical. CATHERINE MASTERS looks at the Government’s track-record.
The housing crisis has been a long time in the making but tens of thousands of new homes are coming, says Housing Minister Megan Woods.
Building consents “fell off a cliff” after the Global Financial Crisis (2008) and nothing was done to stimulate affordable housing, Woods said in a wri en response to OneRoof questions. “As a result, New Zealand has a severe housing shortfall and multiple interventions are needed to increase new development, particularly for affordable homes.”
Cu ing red tape to allow more housing density in urban areas is key to boosting new housing, she says. “PWC estimates the changes we are making, with support from the National Party - the Resource Management (Enabling Housing Supply and Other Ma ers) Amendment Bill - will result in at least 48,200 and as many as 105,500 new homes in the next five to eight years.
“This is in addition to an anticipated 72,000 homes built over about the next 20 years as a result of changes we made last year through the National Policy Statement – Urban Development.
Woods says house prices have risen on the back of low supply and rock-bo om interest rates, a situation that is changing and is likely to impact investors. “Early on, our Government moved to restrain housing speculation with the foreign buyer ban. The new interest deductibility rules to shift investors away from residential property have a deliberate exclusion to encourage investment in new housing.”
Green shoots of positive change are now being seen, she says. “Price rises appear to be stabilising and the number of first-home buyers is growing. There is an enormous amount of building activity in the market, with new dwelling consents breaking records for several months in a row. This trend remains strong.”
While Woods is positive about the crisis improving, two economists spoken to for this story give the Government’s housing performance only a pass mark. Nick Tuffley, the ASB’s chief economist, gives 8/9 out of 10 for enthusiasm and passion for Labour’s recognition of the problem and willingness to a ack it, but only a 5 for execution. Brad Olsen, principal economist and director of Infometrics, gives an overall six out of 10, saying the score could be worse – but it could be be er.
Labour came to power in 2017 looking to shake up the housing market. Among the measures implemented was the overseas buyer ban, but while they looked closely at a capital gains tax Prime Minister Jacinda Ardern went on to rule one out under her watch.
Labour has, however, twice extended the bright line test, first brought in under National, which is like a mini-capital gains tax.
Arguably Labour’s biggest misstep was its flagship KiwiBuild scheme, which had promised 100,000 affordable homes over 10 years but which fell woefully short. The target was abandoned altogether when Woods took over the housing portfolio from the emba led Phil Twyford in 2019. In a “reset” of the scheme, KiwiBuild, along with Housing New Zealand, was put into the jurisdiction of the newly-formed Kāinga Ora – Homes and Communities, which is tasked with being the public housing landlord and also partnering with developers, iwi and communities on urban development projects.
Last year saw the arrival of Covid, record low mortgage rates and other monetary policy measures from the Reserve Bank to stave off economic collapse, but house prices rose.
Earlier this year, the Government announced a housing package that was designed to “curb rampant speculation” and “tilt the balance” of the market towards first-home buyers.
The measures included extending the bright line test from five to 10 years and the phasing out of property investors’ ability to claim interest on loans as an expense.
There were also increases to first home grants and a lifting of house price caps, and $3.8 billion was allocated to a Housing Acceleration Fund to pay for infrastructure.
This year also saw le ers sent to the Reserve Bank by Finance Minister Grant Robertson asking the bank to take house prices into account when looking at monetary policy. After Governor Adrian
Orr rejected that, Robertson directed the bank to take into account the Government’s objective to support more sustainable house prices. The Government has also approved in principle that the bank can use debtto-income ratios to ensure sustainable house prices, as long as the impact on firsthome buyers is minimised.
July this year also saw the announcement of the National Policy Statement - Urban Development, which directs councils to free up land around transport hubs, while in October there was the surprise joint announcement by Labour and National on the Housing Supply Bill which will allow three homes of up to threestoreys high to be built on most sites without the need for resource consent.
Tuffley says improving the supply of homes has been a long-term challenge since the Reserve Management Act (RMA) came into play in 1991. Heavily regulated jurisdictions around the world tend to have higher house prices, he says, and since the RMA the
cost of land and building has escalated, along with time frames around consents. The Government is addressing the RMA but the jury is out on how effective its plans to split the Act into three will be.
But Labour has pushed hard try to resolve the supply side of the housing equation, Tuffley says, and while the original KiwiBuild scheme didn’t work, the plan had been to flood the market with new homes at the lower cost end of the market, where developers weren’t building.
Those include land being scarce and expensive, as well as the difficulty, expense and time taken to get consents, plus infrastructure problems.
Tuffley thinks the joint announcement is progress as it gets rid of a lot of the red tape that has stopped infill development.
Probably the most significant step this year was the removal of interest deductibility, which impacts investors’ cashflow but means residential property is being treated differently to any other investment with tax deductible expenses.
What has been missing is a fast-enough supply response, but to give the Government credit it is working hard on creating more supply of social housing, he says.
Overall, Labour recognised housing as an issue before it came to government and had an “absolute will to do a heck of a lot more about it… but it has been the execution of the ideas which haven’t necessarily been as effective as people would have liked,” says Tuffley.
Housing Minister Megan Woods.
Photo / Alex Burton
WORSE.” - ECONOMIST BRAD OLSEN
ment v the housing market: ever win?
Olsen points to a lot of tinkering on the demand side, saying measures like the foreign buyer ban “was always a convenient political beat-up rather than a solid housing market change”.
And while the change to interest deductibility was presented as a tax loophole, it wasn’t one – “I mean, if that’s a tax loophole then the way we do business is a tax loophole because it is literally how you do business.”
But while investors have said they would leave the market because of the change, Olsen notes that they haven’t, saying housing is their bread and bu er.
Some positives have started to come through.
Olsen praises the National Policy Statement - Urban Design, saying Labour has given more clear directives here than New Zealand has been used to, but says it has been challenging at times to understand how the Government and the Reserve Bank separately see how the Bank fits into the housing sector.
One of New Zealand’s greatest housing policy failures is not having a central focus on housing, Olsen says.
“We have a Ministry of Housing and Urban Development (HUD) but we also have housing policy that is very tightly controlled between Treasury, the Reserve Bank, MBIE, HUD, Kāinga Ora, MSD – you have a real alphabet soup with no over-arching coordination and, therefore, some really difficult mixed messages that are just not helpful in that environment.”
N I C K S M I T H : ‘ I T WAS T H E M O S T S T R E S S F U L P OR TF O L I O I HA D ’
The housing minister for National from 2012 to 2017 talks to CATHERINE MASTERS about tackling the housing crisis at a time of changing migration.
Nick Smith in Parliament in 2020. The former minister is most proud of his work on the Auckland Unitary Plan
Photo / Getty Images
Q: What did you walk into when you took over housing?
When I came into the housing portfolio, we were building only 13,000 houses per year. When National left government, it was 31,000 homes a year. I’m not sure you can grow a sector as large and complex as housing much faster than that. What was under-estimated in 2010 was the sharp turnaround in New Zealand’s net migration. Rather than a net outflow of about 30,000 per year to Australia and further afield it balanced out. As a consequence, we started to see house prices and demand shift in 2011.
Q: What were your achievements?
I’m most proud of rewriting the Auckland Unitary Plan. We walked a tightrope in fast-tracking the rewriting of Auckland’s housing rules. [We had to] address the problems restricting housing supply but not antagonise residents who wanted to be able to address the rules that would change their neighbourhood.
I don’t know if you remember the signs that Labour put up about me throughout Auckland. They had those big hoardings up, “Keep out of Auckland/ Nick Smith, not your business”. At the same time, they were beating me up about the problems of housing affordability and supply. Actually, fixing Auckland’s Unitary Plan was pivotal to ge ing on top of the city’s housing issues.
Q: Is there more agreement between the parties now?
I nearly choked when Housing Minister Megan Woods was challenged over KiwiBuild. She said it was a lot more complicated and recited exactly the same five points that I had made over what was key. Despite the political machinations, there’s actually a reasonable degree of political consensus that those five things - planning rules, infrastructure, trained personnel, innovation and building materials, and support for first home buyers were our housing policies.
Q: So why have house prices been skyrocketing regardless?
I think the Government made an awful error last year in providing $30 billion of very cheap capital to the banks. That has largely gone into the housing sector and fuelled an extra 20 per cent of house price increase.
Q: But for a long time prior to Covid, and despite your work with the Unitary Plan, weren’t prices going up?
There is no question that from 2011 particularly to about 2016, if you looked at the migration flows to New Zealand and the rate of houses being built, we were building up a gap. We were pedalling as fast as we could but the immigration numbers moved far more dramatically than it was possible to build houses.
Q: You, and other National Party politicians, denied there was a housing crisis –was there?
I just thought a huge amount of political energy was burned up over whether you call it a crisis or not rather than debate on the planning laws that would have made a material difference. Word games are not going to solve the problem.
Q: What should have been done differently?
You always wish that you could pull those levers quicker. The nightmare of the last [National] government was never having a majority and never being able to advance key changes to the RMA as quickly or as thoroughly as we would have wished.
Q: Did housing take a toll on you?
I was working hideous hours trying to drive those things. It was the most stressful of the 14 portfolios I had. Complete frustration at the 2014 and 2017 election became a competition over the sound bite of KiwiBuild - I look back with irony at how badly that policy has failed.
O p e n y ou r d o o r to more buyers with JayPrestt
My philosophy is simple - be open and be honest with all parties by giving candid feedback. This honesty, in conjunction with detailed buyer feedback gives sellers the necessar y knowledge to make informed decisions when the time comes
