This Government has one important task above all. It needs to bring the cost of houses back within reach of average New Zealanders. Home ownership is essential to the wellbeing of families, communities and the social health of New Zealand.
Owning a property gives them a secure home, more stability in life and a sense that they have a stake in their locality and the country. It is the best solution to social problems the Government ranks as equally important, namely child poverty and inequality. Solve the housing "crisis" and it would be well on the way to solving the others.
"Crisis" is not too strong a word for the gap that has grown between average incomes and house prices in Auckland and other cities, though it is time Housing Minister Phil Twyford got past political point-scoring. He has been given the Government's greatest challenge and seems to be placing most of his hope in the lower-cost housing building programme, KiwiBuild, under which housing commissioned by the Government will be sold to first-home buyers at cost price, the income to be used to build more such houses.
But the price of land, development, construction and not least, council consents, is such that in Auckland even those houses might be too expensive for average income earners. The increase in the supply of lower-cost housing might lower prices in that segment of the market but only gradually. Something more may be needed, and for that, the Government will be looking to its tax working group headed by Sir Michael Cullen.
It has finished receiving submissions and will issue tentative suggestions in September before producing a final report in February. But it will have noted an article in the Westpac Bank's latest bulletin by its chief economist, Dominick Stephens, who calculates a 10 per cent capital gains tax would reduce house prices by about the same proportion.
Cullen's working group is considering a capital gains tax on house sales, with the usual exemption for those that have been owner-occupied, but ought to look at a rate higher than 10 per cent. There is no reason capital gains could not be taxed as income at the taxpayer's marginal rate, as happens under the "bright line" test that treats capital gains as taxable if the house is sold within five years of purchase. That rule, introduced with a two-year test by the previous Government in 2015, helped stop rapid house-price inflation to that point.
But while that capital gains tax helped arrest rising prices it has not made them fall by anything like 10 per cent. Auckland house prices recorded a drop of only 1.3 per cent in the year to May. That suggests a more complete capital gains tax on all investment property regardless of how long it is held, would not be a calamity for investors.
The Cullen group ought to be looking at removing other tax advantages investors have against people bidding to buy their own home. It might consider making interest tax deductable for all house mortgages and for the earnings of retirement savings funds. Tax changes could see many rental properties become homes young families can own.