Bernard Hickey 's Opinion

Bernard is an economics columnist for the NZ Herald

Bernard Hickey: Hard talk on housing

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These solutions for surging Auckland property prices will likely be ignored

Some section prices in Auckland have tripled. Photo / Doug Sherring
Some section prices in Auckland have tripled. Photo / Doug Sherring

This week's economic and political debate has been dominated by concerns about Auckland's surging house prices.

Reserve Bank governor Graeme Wheeler warned a burst of high loan to value ratio (LVR) lending by banks was adding fuel to the tinder of record low fixed mortgage rates.

Housing Minister Nick Smith railed against Auckland's Metropolitan Urban Limits over land supply on the fringes of Auckland and blamed it for a tripling of section prices in parts of Auckland. BNZ's Tony Alexander released a survey refuting suggestions non-resident Chinese buyers were inflating prices.

There are plenty of ways to explain the 14 per cent rise in Auckland house prices in the past year, but few have put forward a package of solutions. Here are eight kicking around at the moment:

1. Lock Len Brown and John Key in a room until they come out with an agreement to open lots of greenfields and brownfields land to build at least 20,000 affordable dwellings a year for the next 10 years.

That's 10 times more than was built in the past 10 years. That deal should include investment from both governments in the infrastructure needed to support those 200,000 dwellings, including transport.

2. Impose an Auckland land tax to help pay for it. That would immediately reduce land prices by 15 to 20 per cent, and remove the incentive for land bankers to sit on land for tax-free capital gains.

3. Introduce macro-prudential controls to slow high LVR lending, including extra capital requirements for mortgage lending and making banks fund all their lending locally through term deposits. These tools are used by Hong Kong, Singapore, Israel, Sweden and Norway.

4. Restrict or control migration so fewer migrants from offshore and other parts of New Zealand are able to move to Auckland. That could include a regional development strategy.

5. Restrict non-resident investment in houses in Auckland, as Hong Kong and Australia have done.

6. Encourage the development of, or build, one or two large-scale pre-fabricated house manufacturers to drag down the cost of building.

7. Launch an apprenticeship training scheme in Auckland for trades staff to build the 400,000 dwellings needed over the next 30 years.

8. Increase the Official Cash Rate to 3 per cent from 2.5 per cent to cool the doubling of lending growth over the past year.

Politically, these solutions will damage the leveraged equity stakes of property owners. But if they are not done, the economic and political damage will be felt for years.

The Government's efforts to restructure the economy to become more productive and less indebted are in tatters. We are again spending more than we're earning and the banks are starting to borrow overseas again to fund the lending growth, putting yet more pressure on the currency and our net foreign debt.

Our current account deficit is blowing out again and a generation of young Auckland families are seeing their home-ownership dreams dissolve in front of them.

Our politicians face a choice. They can change to benefit the next generation and the poor. Or they can cling to the status quo and risk the wrath of the poor and the young.

Debate on this thread is now closed.

- Herald on Sunday

Bernard Hickey

Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for Interest.co.nz and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

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