Editorial: Demand for investment property the problem

While National has acknowledged the scale of the problem, unfortunately it is not primarily one of supply. Photo / Mark Mitchell

Opinion

Quite rightly, National's first subject of the election campaign is housing. With the economy performing well on most other fronts the residential property market remains its major defect. House price inflation has produced a number of social and economic problems. One is the barrier to young people trying to buy their first home. Another is the rent that takes most of the incomes of low paid families and beneficiaries with children.

Then there are the economic costs of interest rates that have to be increased to offset the effect of house values on general inflation, an over-valued exchange rate that lowers export returns, and the productive sector's dependence on foreign investment because so much of the country's domestic savings is going into residential property.

While National has acknowledged the scale of the problem by making its proposed solution the main point of its campaign launch on Sunday, unfortunately it sees the problem as simply a housing shortage, particularly in Auckland. The problem is not primarily one of supply. People are housed. The problem is that so many are trapped in rented houses because it has become so much harder to buy one.

The rate of home ownership in New Zealand has declined because so many established home owners have bought two, three, four or 10 houses. They are remortgaging their home to buy rental property, not so much for the rent but for the capital gain when they sell. Rent in Auckland has not been rising at a rate that would be occurring if there really was a housing shortage.

The central problem is not supply, it is the demand for investment property. But National is tackling only the supply side with its efforts to have councils zone more land for housing, and the increased first home subsidy it announced at its campaign launch. These steps will do nothing to limit our appetite for investment property and may simply feed it.

National is doubling, to $20,000, a grant available to first home-seekers with KiwiSaver funds. To qualify for the full amount a couple with a combined annual income of $100,000 would need to have had a KiwiSaver account for five years. When the grant is added to the $35,000 they could withdraw, they would have a deposit for a house of up to $550,000. It would need to be a newly built house or apartment.

The "KiwiSaver homestart grant" looks capable of boosting both the supply and demand for new housing in the designated residential zones of Auckland where development consent applications are supposed to receive faster consideration under the Government's accord with the Auckland Council. Builders are likely to provide more of the lower priced houses that would attract the subsidy and first home-seekers will get to the first rung on the property ladder.

Under the terms of the grant, they will have to occupy the house for six months before they can sell it and put the capital gain into a house of higher value. Chances are then that they will sell to a rental investor. The new home owner, having cashed in a KiwiSaver account for a house, will probably become another multi-unit property investor as the mortgage is paid down and disposable income rises.

Too much of New Zealanders' domestic savings will continue to be turned into rental housing until the country adopts an effective capital gains tax on residential property. The Labour Party, to its credit, is committed to a tax excluding owner-occupied homes. If National was to bite that bullet too, it would stabilise house prices, diversify domestic investment and boost productive industries.

National was game to lead its campaign with housing policy. It is not its strong suit.

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