Rodney Hide: Cluster-bomb will blow up prices

Photo / Doug Sherring
Photo / Doug Sherring

The Labour Party has three, and only three, possible policy responses to any problem: tax it, throw money at it or regulate it.

That Labour means business on housing affordability is clear: the Opposition is promising to do all three at once.

Labour is promising to tax houses with a capital gains tax. It is promising to spend money by building 100,000 houses. And now it is promising to regulate by banning foreigners from buying a house.

Labour promises a cluster-bomb of policy to deal firmly and resolutely with house prices.

The policy cluster-bomb will prove expensive. That's a big downside. And it won't work. That, too, is a negative.

On the upside, Labour's cluster-bomb has electoral appeal. There are plenty of voters who still regard government as Santa Claus and for whom the promise of cheap housing is enough.

That pulls across Green votes.

There are also plenty of voters who believe that more tax is always and everywhere a good idea, that more government spending is invariably warranted, and that much more regulation of everything is needed. That locks in the Labour diehards.

The policy, too, has appeal for the great many Kiwis who genuinely believe their problems are caused by foreigners, especially Asians. Typically, this electoral field is left to Winston Peters to plough to great electoral effect.

That Labour have rushed to his political paddock shows (a) how desperate David Shearer is; and, (b) how diminished Peters has become as a political force.

Labour's cluster-bomb may well have electoral appeal.

But it certainly won't work on house prices. First up, the cluster-bomb is hitting at only the edges. And, second, the individual policies don't fire.

The capital gains tax is the most expensive of all taxes to administer and is the easiest of all taxes to dodge: just don't sell. The capital gains tax will therefore stifle the housing market and will hike prices as buyers must, in part, compensate sellers for the tax they must pay.

Labour's plan to build 100,000 houses will also prove very expensive. No government has ever built anything cheaper than private industry. Twenty-seven government departments trying to build a house sounds like the start of a joke, not serious policy.

And then we have the ban on foreigners buying houses.

The numbers Labour used to justify the policy include expat Kiwis such as former Labour leader Helen Clark, who owns four houses in New Zealand while living and working in New York. The limited information available also suggests the numbers of foreigners buying houses equates to the numbers selling.

The ban on foreigners is based on nothing but poor anecdotal stories and underlying xenophobia and racism.

It will have next to no effect on the housing market.

Labour's promise of more tax, spend and regulation to drop house prices is all the more absurd when it is tax, spend and regulation that's driving up prices.

High government spending means high taxes. High taxes drive up house prices. Fully one-third of what you pay the builder is paid to the government and GST adds 15 per cent to the cost of everything bought.

The controlling and constricting Resource Management Act blows out the cost of all development in terms of money and time.

And Auckland's Metropolitan Urban Limit constrains the supply of land, driving up house prices.

The average section price in New Zealand accounts for 40 per cent of the cost of a new house but in Auckland it's 60 per cent. There's a 20 per cent council planning tax on Auckland houses.

The answer to housing affordability is not Labour's more tax, more spend, more regulation. The answer is less tax, less spend, and less regulation. But don't hold your breath. Too many voters still believe in Santa Claus government.

Debate on this article is now closed.

- Herald on Sunday

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