Key Points:

John Key's latest political shimmy can only mean one thing - the winds of change are blowing on attitudes to Auckland's housing boom. If anyone can feel these things in his bones, it is our sagacious Prime Minister. In hinting at a land tax on foreign buyers he is betting big that his Government needs a proactive new policy tool to avoid looking out of touch. Again. This is the second time in a year that National has softened its view that Auckland's housing problems are caused solely by lack of supply. Last year we saw the introduction of a "bright-line test" for investors selling inside two years. We also saw a requirement that foreign investors register with the IRD so accurate data on offshore demand could be recorded. The possible land tax is the logical next step if it becomes apparent that high levels of foreign investment are distorting the local market. In floating this potential policy shift early, it appears Key either has some insight into what will be revealed by IRD data next month, or is picking up new levels of concern from the public. The latter is possible. March housing stats, which showed Auckland prices soaring again after a brief pause, appear to have been dizzying for many Aucklanders. The number of people feeling locked out of the market is growing, and, perhaps more significantly, so is the unease of home owners pondering their children's future. In the complicated matrix of causes for this housing boom, none runs hotter than foreign investment. The risk of xenophobia is real, as is the risk of outright racism if buyers are targeted for their ethnicity. We should avoid the former because it would be bad for the economy and the latter because it is deeply unfair. But we can't avoid the impact that global capital flows are having on our relatively tiny property market.

The risk of xenophobia is real, as is the risk of outright racism if buyers are targeted for their ethnicity.
The fact is, some US$1 trillion ($1.45trillion) of capital flowed out of China last year. Given New Zealand's special relationship with China, given the popularity of property as an investment class in China and given New Zealand's open investment regime, we'd be foolish not to pay attention to the issue. Will a land tax solve Auckland's property crisis? Probably not. And certainly not in isolation. There is no shortage of tax experts ready to point out that there will be loopholes to be found. Most demand-side solutions have flaws. But then, depending on who you talk to and where you live, so do the supply-side solutions. For a political party on the centre-right, supply-side solutions are always preferable. They involve less government, not more. But there are limits to what National can do to drive new building. This latest shift in stance is a sign those limits are being reached. This will be frustrating for Key and Bill English. The decision to move is an admission that this issue has the potential to become a deal-breaker for voters. Debate on this article is now closed.