John Armstrong: Parties play politics over housing crisis

Photo / Chris Gorman

If ever there was a seemingly intractable problem whose solution could benefit from the application of a heavy dose of political consensus then surely the delivery of affordable housing in Auckland fits the bill.

There is, of course, already a healthy degree of consensus between central and local government in the form of National's Housing Accord with Auckland Council.

It is a very different story as far as National and Labour are concerned even though some kind of consensus between the two main parties would be of considerable assistance to the Reserve Bank if they stopped questioning its efforts to cool a dangerously overheated property market as it sees fit.

The central bank has put its credibility very much on the line as to whether its swingeing intervention in the home mortgage market will work or not.

It could do without political parties - most notably Labour - making promises that would sacrifice the bank's flexibility solely for naked political self-interest.

Indeed, Labour's willingness to make the bank's task potentially more difficult by promising to exempt first home buyers from new rules that will drastically slash the number of low-deposit home loans raises further questions about Labour's adherence to the long-established consensus that the bank must be allowed to act independently and be free from political meddling.

The argument for consensus solutions is enhanced by National and Labour claiming to have the same objective - ensuring enough homes are built in the Auckland metropolis each year to cater for ever-growing demand while putting simultaneous downwards pressure on the ever-escalating price of residential property in the city.

While there may be marked differences in the two parties' manner of delivery, there is common ground. Labour, for example, is unlikely to overturn National's fast-tracking of planning consents.

Both parties, moreover, pay homage to an amorphous tribe known as "first home buyers" who are accorded roughly the same untouchable status as other threatened species such as the Hector's dolphin or the yet-to-be-headhunted members of Team New Zealand's America's Cup crew.

The two parties pay homage for very different reasons, however.

As the governing party, National constantly fears it is going to cop the blame for the housing crisis - and not just from would-be first home buyers. The party is vulnerable to charges that it was too slow to react to the crisis.

Hence the rush to come up with new policy ideas even if they are of limited value, this week's FirstHome initiative being a prime example.

That programme involves selling around 400 surplus-to-requirement state houses, These houses are all in provincial centres and not Auckland, prompting Act's John Banks to slam the move as the "politics of bubble and squeak" - Banks-speak for something that only tinkers with the problem.

Labour, on the other hand, is pitching to first-home buyers on a number of fronts with the intention of marginalising National.

Labour argues it has a coherent package to tackle the affordable housing problem in the shape of a largely self-funding house building scheme and a capital gains tax to thwart speculators.

Both policies have serious weak points. But National has so far failed to shoot down either.

Somehow Labour has instead convinced people that its policies will make a real difference in the short term while National's ideas will only bear fruit in the long term.

That was why it was vital for National to this week highlight the building of nearly 300 affordable homes on surplus Government land at Weymouth in South Auckland. The project is the first example of how the Housing Accord will fast-track the building of homes with the first ones ready for occupation by the middle of next year and the entire development completed by 2017.

Given affordable housing is one of the few issues where Labour has National very much on the back foot, Labour is not going to give that advantage away in a hurry. Labour has instead upped the ante on National with its promise to exempt first-home buyers from the Reserve Bank's move against low deposit home loans.

The central bank's rationale is worth repeating as it has been lost sight of in the ensuing debate. Why - the bank warns - do New Zealanders think they are immune from the kind of financial shock that crippled Ireland as a result of an over-inflated property market?

It is a question both National and Labour have been reluctant to address. Both parties have instead sought to keep first-home buyers on-side.

In National's case, that was thwarted by the Prime Minister's failure to persuade the Reserve Bank to countenance an exemption for first home buyers. John Key's frustration was palpable. He has an almost pathological aversion to vacating political territory to National's enemies.

Even more galling for Key was David Cunliffe stepping into the breach with his promise that Labour would ensure that first-home buyers were not the victims of the Reserve Bank's decision to order trading banks to slash the number of mortgages written for borrowers with a deposit of less than 20 per cent of the home's value.

Labour's increasingly cavalier regard for the functions and independence of the Reserve Bank has been obscured, however, by the Prime Minister's seemingly similar behaviour. What was good for the National goose had to be equally good for the Labour gander.

The difference, however, was that National's plea was made during consultation between the bank and ministers required under the memorandum of understanding between the Reserve Bank and the Government.

The bank insisted the restrictions would have insufficient bite to curb spiralling house prices if first-home seekers were excluded.

Not wanting to compromise the bank's independence, Key had to accept the bank's right to write the restrictions in its own terms.

Not so Labour. Cunliffe made vague noises about not interfering with the bank's independence. But he intimated a Labour government would effectively instruct the bank to have regard for first-home buyers by writing that requirement into the policy targets agreement that a new government signs with the bank soon after taking office.

Cunliffe's stance reflects his intention to give Labour a more bolshie image. He is exploiting the fact that Opposition parties can promise more than governments can. And he knows interest rates are likely to rise before the election.

But Cunliffe has to be careful. With Labour also committed to making the Reserve Bank take heed of exchange rate fluctuations, Cunliffe has to avoid leaving the impression that Labour's answer to every economic problem is to fiddle with the Reserve Bank's mandate - and thereby neutering the institution in the process.