Labour is putting housing at the centre of its campaign, but the PM is defiant: New Zealand isn't heading for a crash.
"I've lived in London, I've spent a lot of time in New York. I've lived in Sydney and I've been to Singapore. And if you are going to seriously start telling me that a house in Auckland is more expensive than a house in Sydney or Melbourne or Brisbane..."
It was a rare misstep for a prime minister who has built his political fortunes on his canny ability to empathise with the average voter. After a pragmatic Budget that grabbed the centre ground, John Key would have expected to dominate the economic agenda between now and the election. But a report on housing affordability, published just days after the Budget, grabbed headlines and caught the public mood. Suddenly housing was an election issue, and Key, a multi-millionaire, seemed uncharacteristically out of touch.
Opposition politicians and many economists are lining up to say we have a housing affordability crisis, especially in Auckland. The argument highlights the stark choices voters have when they cast their vote in September's general election.
With the OECD labelling Auckland house prices some of the world's most unaffordable, housing issues have rocketed up the list of voter concerns. Soaring prices in Auckland, and their disconnect from income levels, had been a slow-burning political issue until last month's Budget. But with net migration reaching record levels and placing even more pressure on house prices, a volatile mixture of issues confronts politicians and voters.
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The Reserve Bank's determination to grab some control over prices by introducing low-deposit loan restrictions and steadily increasing the official cash rate, and consequently mortgage interest rates, has brought new focus to the nation's housing issues. Increasing interest rates come at a time of strong economic growth, but the timing is inconvenient for a Government about to ask voters for a third term in office.
While Aucklanders watch as the value of their properties soar, elsewhere in the country property values remain subdued, most well below their worth at the last housing market peak in 2007-2008.
The OECD calculated that house prices in New Zealand are 70 per cent above long-term averages relative to rents, the highest in the world.
Key's response was: "There's always been an issue about price to income but the question is: 'Will your home collapse in value like they did in the United States, where you had a real bubble caused by the financial techniques used by bankers, like sub-prime mortgages? '
"The answer is... there's no factors that would indicate that we have a particular bubble. The economy's strong, people's wages are strong, borrowing is reasonable and so I don't think that foundation is going to break."
While acknowledging the housing shortage, the Government has also been anxious to maintain the economic "feel good" factor that has come with economic growth, after six long years of recession.
First-home buyers in Auckland undoubtedly have serious affordability issues, but established owners across the city have watched their biggest asset increase in value by between 20 and 30 per cent during the last seven years. Just on 50 per cent of New Zealanders aged over 15 are home owners. For most of those well-established on the housing ladder, increased housing prices has meant greater economic security and they would be alarmed if the capital value they have accumulated was threatened by any dramatic downturn in the housing market.
Meanwhile, home owners in the regions watch as discussion concentrates on price rises they have yet to see emerge in their respective markets. Some prices remain 30 per cent below their 2007 peak, while those in regional centres such as Tauranga, Rotorua and Whangarei have started recovering from the slump.
The impact of housing policies on voting intentions is impossible to predict, but opinion polls suggest opposition parties have some ground to make up if they are to capitalise on any voter anxiety.
There are vulnerable National seats in the mortgage-belt outer Auckland suburbs but National appears to be benefitting from people feeling more confident about their futures as a result of stronger economic growth.
Political science lecturer and author of the Politics Today blog, Dr Bryce Edwards says housing affordability is shaping up to be a key election issue, one that favours the opposition parties over a government perceived to be doing nothing about the problem.
The Otago University academic says the fear is the political fight will descend into a populist campaign against immigrants and foreigners.
Housing is a policy area where voter choices are stark - National and Act parties insist tearing away bureaucratic and planning restrictions on developments and speeding up housing subdivisions are the answer to Auckland's housing woes. Labour, the Greens and New Zealand First parties agree there is a housing shortage but they advocate greater Government intervention to quickly boost the number of affordable new homes. In Auckland that means new homes in the $350,000 to $400,000 category - the sector most impacted by the Reserve Bank's restrictions on loans to home buyers with less than 20 per cent deposits.
Most politicians agree there is a shortage of homes, but their policy solutions to the problem are poles apart. Key says the home building industry is already gearing up in his own electorate of Helensville. This, he says, shows the Government's efforts to boost housing supply are emerging.
But Opposition Leader David Cunliffe says the lack of affordable housing is the major issue in his electorate, New Lynn, one of the city's older inner-western suburbs.
Key insists there is no crisis because people are still able to access relatively cheap finance for housing, and that mortgage rates remain at historically low levels.
"It's not a crisis," he told Radio New Zealand listeners last month. "A crisis would indicate that A, you couldn't buy a home. Well that's not true. There are houses in quite a wide range of prices."
Banks were still making loans above the Reserve Bank's LVR limits, and interest rates were at 50-odd year lows. "Wages are rising - they have been rising faster than inflation," he said.
He said the way to deal with the problem of rising house prices was to increase the supply of houses. "That's why the Government has special housing areas - the number of consents has doubled," he said.
The Government has been concentrating on increasing the supply of new homes, as quickly as it can, by fast-tracking planning permission, identifying land that can be developed for housing, and trying to reduce the cost of new builds.
In the Budget the Government temporarily lifted tariffs on some building materials, saying the move would reduce the cost of an average home by $3500. It has negotiated dozens of Special Housing Areas with the Auckland Council, in which developers' proposals for subdivisions will be fast-tracked through the planning process.
While thousands of new homes cannot be constructed overnight, the Government says home building is ramping up fast, particularly in Auckland and in Christchurch. It says the first new homes to be built in Auckland under its fast-track policies will go onto the market before the year's end.
But National efforts to introduce far-reaching changes to the Resource Management Act have been rejected by its coalition partners, the Maori Party and Peter Dunne's United Future Party. As a result, Key says his party will take its reforms to further streamline planning procedures under the act, into the general election campaign. Voters can approve or disapprove of the changes, and if the Nationals win the poll, the party will be able to claim an electoral mandate to enact the reforms.
Construction continues at the Stonefields housing development in Mt Wellington. Photo / Michelle Hyslop
Other parties say Key is trying to tip the balance in the act between development and the environment and communities, too far in favour of developers. Labour agrees some changes could be made to speed-up planning procedures, but says more direct intervention in the housing market is urgently required.
Labour advocates the introduction of a capital gains tax on properties other than the owner's primary dwelling, aimed at discouraging speculators who it says are inflating house prices. It wants a tighter rein on net immigration to reduce pressure on the Auckland housing market, and it would make KiwiSaver compulsory to encourage private saving.
The party would also allow either the Government of the day or the Reserve Bank to increase or decrease KiwiSaver contributions as an additional lever to either dampen or support the housing market, depending on economic circumstances. It has also pledged to start its KiwiBuild scheme immediately. The party aims to have 100,000 affordable new homes built over the next decade. A combination of economic policies, it says, would improve individual saving rates and help dampen the impact of a property boom or bust.
The Greens and New Zealand First also advocate more targeted immigration policies to take pressure off rising house prices, especially in Auckland where the bulk of new migrants tend to settle.
Immigration and its impact on house prices will be pursued as an election issue, particularly by New Zealand First leader Winston Peters.
Peters and his party have a long record of campaigning on the issue, but research by the Asia-New Zealand Foundation suggests it requires more work by the main parties. Tens of thousands of Asia-born Aucklanders have been living here for a decade or more. While New Zealanders generally are more accepting of Asian migrants, the foundation's research shows Maori are less likely to support Asian immigration.
New Zealand First will argue vigorously for controls on all foreigners buying existing homes here. Peters gave voters a taste of his robust approach to the issue in his Budget speech to Parliament last month. "For almost six years National has allowed, indeed promoted, a housing crisis by blatantly ignoring all the underlying causes," he said. "Everyone with a brain knows that tens of thousands of Auckland houses have been gobbled up by overseas buyers - it's been a bonanza for foreigners."
The Act Party opposes restraints on foreign buyers, saying such restrictions would merely disadvantage New Zealand home owners trying to sell their properties.
Cunliffe says house prices are so out of whack with what households earn that even the Government had admitted fixing the problem could take decades. "In my electorate of New Lynn housing is the number one electorate issue facing people," he says.
Labour argues the biggest barrier to home ownership is the difficulty of getting on the first rungs of the housing ladder. The party says the number of new affordable homes built during the last 50 years has dropped from a third of all new homes, to just 5 per cent.
Labour would partner with the private sector, community agencies and local government to ramp up to building 10,000 houses a year. The homes would be modest entry-level houses for sale to first home buyers, and most of the houses built in the first five years of the policy would be in Auckland and Christchurch.
Labour would not allow non-residents to buy existing houses, flats, or apartments in New Zealand.
But the Minister of Housing, Nick Smith, says some of these countries also have problems with rising house prices, even with capital gains taxes and restrictions on overseas buyers in their respective markets. The Nationals believe the best way to resolve the affordability issue is to increase the number of new homes coming onto the market.
Last month Minister of Housing Nick Smith announced the third and final batch of 41 Special Housing Areas in the Auckland region, offering the potential for 18,000 new homes.
Seven strategic areas were identified because of their transport links and access to other infrastructure. These included Albany, Takanini, New Lynn, Great North Rd, Otahuhu Coast and Flat Bush, all of which will yield more than 1000 homes.
The Minister of Finance, Bill English, says the biggest factor affecting home affordability is interest rates. "The best thing that Government can do is limiting its own spending to take pressure off those rates," he says. Without that continued restraint on spending, interest rates could be pushed above 10 per cent, ending the dream for those wanting to buy their first home.
With at least one more interest rate rise in the pipeline before the election, housing issues are certain to remain a key talking point as the campaign builds momentum over the next 15 weeks to polling day.