Housing boom could threaten financial stability and Government should act.

Will giving tax inspectors more resources to clamp down on profit-takers have any effect at all on the rampant Auckland housing boom? Or is it simply a diversion from the very big differences which have emerged across Wellington's The Terrace on whether - and how - the housing boom should be tempered.

That's the question after Bill English foreshadowed plans to further resource the IRD in his May 21 Budget so it can make a better fist of enforcing the current laws on property speculation.

The Reserve Bank has strongly suggested there is a growing need to take some action to slow the boom and shore up the financial system against potential disruption in the event of a correction to the housing market.

But the Government has stuck to its guns. It maintains the real problem is a lack of housing supply in Auckland ... something that a team of Cabinet ministers is endeavouring to address on multiple fronts.

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Looking at the positives, it is arguably not a bad problem to have.

As Singapore-based TD Securities strategist Annette Beacher was reported as saying yesterday: "Throw in strong employment, a near-balanced budget, low personal and company income tax rates and a strong Government, and no wonder record numbers are choosing to live and work in New Zealand."

Other strong growth factors include the construction in Canterbury, sustained high employment and construction activity, and strong household consumer spending.

New Zealand's economic growth rate is clearly being underpinned by high net immigration.

But that is a two-edged sword as a record number of immigrants continues to put pressure on Auckland's overall infrastructure and housing prices.

It's that latter point which Reserve Bank deputy governor Grant Spencer has underlined. Annual house price inflation in Auckland reached almost 17 per cent last month. The city now has a shortfall of between 15,000 and 20,000 properties.

Spencer noted that practical difficulties stand in the way of using migration policies to slow the Auckland market.

He warned of a potential risk to the stability of the New Zealand financial system if there was to be a correction to the Auckland property market boom.

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Spencer also suggested a range of measures that were interpreted as proposing some form of capital gains tax.

Such a warning cannot be taken lightly.

But when the Finance Minister outlined his plan to reporters yesterday, it did not have the same level of urgency as Spencer's frank comments.

English essentially says the Government will not be taking any action via new taxes (in particular capital gains tax) without the electorate's approval.

"The lesson, particularly out of the last election campaign, is that the public do need to support changes in taxation for housing because it is for by far the majority of New Zealanders their main asset."

English - like the Productivity Commission - takes the view that the Auckland boom is essentially a supply side issue. Not enough houses or apartments have been built to accommodate Auckland's growing population. Thus immigration pressure (coupled with the inclination of more New Zealanders to stay put) has resulted in house prices being pushed up.

The Finance Minister's response is a rational one.

The problem is that all measures (so far) proposed by the Government to address the housing issue belong in the "too little and far too late" camp.

The Government's housing accord with Auckland Council to address planning issues that stand in the way of major housing developments has yet to result in a quantity of new houses or apartments being built.

Meanwhile, young people in particular are either paying too much to buy homes (as measured by international housing affordability indexes) or can't match the rentals currently being charged in Auckland.

The Government's inability to push through reforms to the Resource Management Act is also cited as another reason why mass building has yet to get under way.

In essence the Government has bound itself in a stalemate of its own making.

English's reasons for dismissing the introduction of a capital gains tax don't really wash.

He managed to gain broad public support to raise GST in the much-vaunted "tax switch" without first taking that move to the election.

The politically popular responseis not always the right one totake.