The Government deserves a thunderous round of applause for at least one of its moves on the housing market this week. Removing tax deductions for interest on loans for investment homes is only fair and long overdue.
It removes a benefit not available to those buying a house to live in and levels the playing field when they are bidding against investors at auctions.
Property investors are, of course, aghast. One of them said he knew of no other business where interest payments couldn't be claimed as a business expense. Let me try to distinguish their business from others.
I know of no other business that drives the cost of a necessity so far beyond the reach of so many. People, mostly older with mortgage-free homes of their own, can easily buy many more, capitalising on rapidly rising prices largely created by their own demand.
I know of no other business more heavily subsidised by the taxpayer. Few tenants could afford their rent without the accommodation grant. Taxpayers are effectively paying the investors' interest and more. To let them then deduct the interest from tax on other income has been doubly, absurdly generous.
Andrew King of the NZ Property Investor's Federation says many of them will be forced to sell when the deduction is withdrawn. I wish they would but when the Government stopped write-offs of losses on rental houses against other income, the market continued to surge.
The Prime Minister says there's no "silver bullet" for the housing market. Every time someone says that, I think of the Treaty of Waitangi. Debates about the meaning and intentions of the Treaty have lost sight of what it actually did. It was a massive intervention in the property market.
If we could somehow listen in to discussions at Waitangi when the Treaty was proposed we would hear settlers and iwi leaders talking mainly about their rights to buy or sell land. The Crown was proposing to nationalise all purchasing of Māori land, which it did, but it also did something else. It cancelled all deals made with Māori before 1840.
Many of those purported purchases were huge, giving a settler an estate the size of a small country in Europe. A man named William Fairburn claimed to have bought the entire southern half of today's Auckland region.
The colonial government seized these estates and gave the settler title to a much smaller parcel that represented fair value, in a commission's assessment, for goods exchanged. The rest of the property, called "surplus", was retained by the Crown for sale in smaller lots.
Many a later claim to the Waitangi Tribunal would argue the surplus land should have been returned to the tribes that, descendants claim, did not sell it - but that's another issue. What is striking about this episode in our history is that a confiscation of property was accepted at that time.
Obviously a confiscation of surplus houses – surplus to the investor's reasonable retirement needs – would not be acceptable today unless the state compensated the owner at current market values. The cost would be frightful, though nothing seems beyond the reach of public budgets in an age of pandemic relief.
The problem now is that land is grossly overvalued, whereas it was just as grossly undervalued in transactions before 1840 but the consequences are the same. We are being steadily divided by property ownership, a society of suburban landlords and landless tenants, not so very different from the rigid divisions 19th-century settlers came here to escape.
We have taken drastic steps to spread property ownership several times in our history, notably the carve-up of pastoral runs later in the 19th century, the leasehold-freehold debate at the turn of the 20th century and, closest to Labour's heart, the house building programme begun by the Savage Government.
Jacinda Ardern keeps a photo of Savage behind her desk but building more houses is not the solution to this century's dilemma. Building more houses merely adds fuel to the fire unless the houses can somehow be kept out of the reach of investors.
Housing is the Ardern Government's historic task. It inherited an economy that had recovered from a global crisis more quickly than almost any other, causing fewer people to leave New Zealand and more to migrate here. The population rose at a rate unseen since the 1960s and house prices, rising worldwide on low interest rates, went higher here than anywhere.
Housing is at the root of the inequity this Government wants to heal. This week it gave the problem its best shots yet, also extending the bright-line test for capital gains tax to 10 years. But even a 33 per cent levy leaves an enticing gain.
If tax doesn't discourage investors the Government should go harder. Find that bullet.