Suppose a government was to announce tomorrow a suite of measures to address New Zealand's hyperinflation of house values. Suppose the package included an extension of automatic capital gains tax to investment property sold within five years of purchase, a removal of tax write-offs for investment costs that exceed its rent, a ban on sales of existing homes to buyers who are neither New Zealand citizens nor permanent residents, a $2 billion programme to build houses that could not be sold above a set value, and money to build more state houses. The shock value of an announcement such as that might have more impact than any or all of those measures if they were dribbled out fitfully.

This, of course, was the package Labour announced at its centenary conference on Sunday. Since Labour is not in government, its announcement made no impact on the market but this time next year, when an election will be just months away, home-owners and home-seekers alike will be taking notice. Unless something has happened in the meantime to stop runaway house prices, this promises to be the election's decisive issue.

It is not an issue that will necessarily favour Labour. Nobody with a recent mortgage, whether an investor or an owner-occupier, will support policies that could cause house values to come down. Labour, therefore, will highlight the supply side of its package as it did on Sunday. Its building programmes, for both low-priced ownership and state rentals, will be featured rather than taxes designed to discourage excessive speculative investment. Yet the building programmes look less credible.

Labour is promising to build 10,000 "affordable" homes a year over 10 years to be sold for no more than $600,000 if they are in Auckland and $500,000 elsewhere. They would be financed initially by a fund of $2b that would be replenished as houses were built and sold. If the building industry has the capacity to provide that many houses, it could only do so by reducing construction of higher-value houses that are much more profitable. It is hard to see builders doing this unless Labour's low-cost houses give them the same profit margin, and to do that, Labour would need to find low-cost land.


It is for that reason perhaps that the party proposes to establish an Affordable Housing Authority with the power to seize large parcels of land for development. Housing Minister Nick Smith has recently entertained the same idea, but compulsory acquisition at a price negotiated by the authority sits more comfortably with Labour than National voters.

Labour also proposes to turn the state housing corporation, Housing NZ, back into a public service department so that it would not need to pay a "dividend" on the capital entrusted to it. The "dividend", says Labour, would be spent instead on making state houses warm and dry. Well, maybe. More likely the dividend would disappear in departmental costs without the discipline of a notional return on capital.

State housing and building programmes are just the political branding of a package that contains more potent taxation inside.