Auckland housing market woes
For better or worse, politicians and central bankers are no longer on the same page.
It was simpler in the 1990s. Back then, Reserve Bank governor Don Brash was the country’s No 1 inflation fighter, and the government of the day was happy to let Brash raise interest rates and take the flak himself – he’s independent! – from exporters feeling the pain.
How times have changed. The Key Government remains in stubborn denial that a housing crisis exists in Auckland, but the Reserve Bank leadership plainly doesn’t share that view.
Last week, the Reserve Banks’ deputy governor, Grant Spencer, signalled that when the Auckland house price bubble eventually pops, New Zealand’s entire economic and financial stability could be at risk.
One driver of that situation, Spencer added, was the ability to borrow money and take tax-free profits from housing speculation.
In sum, Spencer was identifying a crisis and intimating that a robust capital gains tax was part of the solution. That not only puts the Reserve Bank on a collision course with a National-led Government that has never believed in a meaningful capital gains tax, but also with Labour’s leader, Andrew Little.
Repeatedly of late, Little has made it clear he thinks Labour shouldn’t have saddled itself with a capital gains tax policy at the last election.
In interviews, Little has specifically exempted from blame the Mum and Dad investors, who buy an extra property or two for their retirement savings – even though Spencer had fingered them as a cause of the price bubble, and more so than the fabled speculators buying five, 10 or 50 houses.
Ironically, when the dust had settled on Spencer’s speech, the main thing he had accomplished was to unite Labour and National against the solution he had identified.
To be fair, Little did support another way of deflating Auck- land’s house prices.
Labour would require a progressively bigger deposit when people bought more than one house. Hopefully, those loan-tovalue ratios ( LVRs) would dampen down the market. Even so, steeply escalating LVRs wouldn’t do much to prevent the Mum and Dad investors (who are chasing only one or two properties) from further inflating the bubble. LVRs, some said, could even raise prices.
If answers were scarce on the demand side of the problem, things looked even worse on the supply side.
Act Party leader David Seymour laid all the blame on red tape, and advocated ribbon development on the city’s fringes – as if Act had never heard of the last 60 years of social problems ( and costs) associated with urban sprawl.
In the Reserve Bank’s opinion, high-density housing is needed. Yet the building trade is already stretched by the Christchurch rebuild, to the point where construction price inflation is now feeding into Auckland.
That would suggest a crash programme of building houses may be beyond our capacity, even if the political will to fund it existed.
Pity the poor Reserve Bank. To attack housing speculation it can pull the interest rate lever and raise the cost of borrowing.
Yet those high interest rates then cause currency speculators to rush in, boost our currency and hurt our exports. For now, everyone and everything – the Reserve Bank, the two major parties, our currency and our exporters – seem to be captives of Auckland’s housing market.