Our "Home Truths" series over the past two weeks has concluded with some possible solutions to runaway house prices that leave too many facing rented accommodation for the rest of their lives. We made 10 suggestions. These were not alternatives - all or most of them would need to be done at the same time. They amount to a suite of measures, some of them quite radical, that can not be expected from a government that has been in office long enough to have considered them. The housing problem has reached the proportions that require fresh thinking from a government elected to do something about it.
An effective reform of the real estate market would probably require both major parties to swallow some policies they have not supported so far. It could require a more active state role in the financing of low-cost houses, as Labour suggests, and doing away with limits on urban expansion, as National advocates.
Almost certainly it would need to include additional taxes on capital gains and on the "negative gearing" that allows rental property losses to reduce the owner's tax on other income.
The present Government has moved a little in those directions with the removal of depreciation write-offs in 2010 and the two-year "bright line" test for capital gains tax on the sale of houses that were not the owner's home. The failure of the latter to slow house prices for more than a few months this summer may force the Government to go further in the Budget this month, but it is unlikely to bring in the open-ended capital gains test and remove all write-offs from speculative property investment, putting it on a level playing field with those buying a home to live in. They cannot deduct mortgage interest and other costs from their income tax.
Besides financing more low-cost housing, abolishing metropolitan planning limits to stop "landbanking" on the periphery, and taxing speculative gains, a reform package would include directives to local government about the infrastructure that would have to be charged to new developments and the proportion of higher density of accommodation that has to be permitted. Measures would have to be taken to boost productivity in the house building industry and ways devised to bring more competition and lower costs to the supply of materials.
More broadly, immigration policy would need to be connected with the capacity to provide enough houses, and the rules should favour investors who are putting their capital to better use than real estate from an economic point of view. If all, or most, of these things were done in one resounding hit, it would surely slow the market. The risk is it might send it into reverse. A falling market would leave a high proportion of owners with mortgages higher than their house is worth.
But New Zealand's house values have proved very robust, falling only slightly after 2007, when the last bubble burst, and recovering within a year or two. Chances are it would survive stiff medicine but price rises could be checked and gradually become affordable for the next generation.
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