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.

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