Taxing the profits made on a family home makes sense from an economic perspective but it would never happen because of the political fall-out, says Westpac boss David McLean.
Introducing a capital gains tax has become a political hot-spot this election with Labour's Jacinda Ardern opening the door to the idea, although she has ruled out including the family home.
Despite a slow-down in the Auckland property market, houses remain highly unaffordable for first home buyers in New Zealand's largest city.
But McLean, who presides over one of the country's largest banks, says even if a capital gains tax was introduced on investment properties it wouldn't solve the housing issues on its own. "Just look at Sydney," he says pointing to its rising house prices despite there being a capital gains tax in place.
"There is a no simple quick fix. It's about supply and demand - and having a wider range of policies to deal with that." But he says it is also important to make sure we have a level playing field for investment. The tax advantages of property mean that is where money is going - not into the capital markets or being invested directly into local businesses.
He is upportive of the Reserve Bank having a wide range of tools to help manage bank lending, but says nothing more needs to be done at this stage - backing a view across the sector that debt to income ratio limits should not be applied any time soon. "I think the evidence shows there is no need for more tools to be applied. There is no evidence there is a burning platform that needs to be addressed."
Loan-to-value ratios which limit lending to those with a low deposit are said to be part of the reason the market has slowed in recent months prompting calls by the real estate industry to exempt first home buyers who purchase cheaper houses.
McLean believes the rules will need to lifted at some point but not right now. "There is no point in slavishly implementing rules forever.
"From the Reserve Bank's points of view and our own view as a lender when you have had a strong period of inflation - it does increase the risk of a down-turn. There hasn't been a long enough period of stability to justify taking them off."
But he admits it is hard for first home buyers. "It makes it harder to get into houses. It increases the disparity between those in and those not." But he says the worse thing would be to have a massive correction - a drop of 30 to 40 per cent. "That would be a disaster for the New Zealand economy."
David McLean's top three issues
The Herald's Mood of the Boardroom 2017 Election Survey attracted participation from 118 respondents. The results were debated this morning by shadow finance spokesman Grant Robertson and National's Finance Minister Steven Joyce.