Ashley Church: The 5 worst housing market decisions ever
Over the 15 or so years that I’ve been commentating on the New Zealand property market I’ve been criticical of many housing policy initiatives introduced by National and more recently by the LabourNZ First Coalition.
I question policy because my 35 years of experience in the residential property market allows me to see consequences which governments either can’t or choose not to.
There have been many policies, but for me there are five nominees for the award for being particularly pointless, unhelpful or downright dangerous. These are:
1. The Loan-to-Value deposit restrictions
My objections to these pernicious rules, introduced in 2013, bear repeating. The LVR restrictions were introduced not by the then National Government but by the Reserve Bank, with the grand claim that they would stabilise or even reduce house prices. They failed completely — house prices continued to increase. Instead, LVR led to the single biggest problem facing the housing market — the “deposit affordability” crisis in which thousands of first home buyers have been closed out of the market because they can’t put together a large enough deposit.
2. The Foreign Buyer Ban
For years we’ve heard that foreign buyers were pushing up house prices, but the number of Kiwi homes bought by foreign buyers before the ban was small, just 3 per cent in 2017, according to Stats NZ. The Labour Party wasn’t about to let the facts get in the way of a good story and promptly enacted a buyer ban just 12 months after coming into power. A year later, headlines were celebrating the impact — an 81 per cent drop in foreign sales over 12 months. But what wasn’t being reported was that the drop was 81 per cent of that original 3 per cent, or about 2.5 per cent of all sales. The ban didn’t make a jot of difference to house prices. If there was an award for a completely pointless policy, this one would take it out.
3. Ring-fencing of property investor tax losses
Much of the Government’s policy has been less about fixing the housing market and more about punishing those demonised by the left. Ringfencing is such a policy. It ignores international tax practice and treats the taxation of property investment differently to any other form of business activity— but not for reasons to do with logic or fairness. The changes target mum and dad investors, and the punitive financial impact will be substantial. While it’s too early to measure the effect of this policy, I predict it will dampen investor activity in the rental market at a time when we need more rental units than ever.
4. Changes to the residential tenancies act
There are too many compliance requirements introduced by the current Government to list. I include them here not because some of them aren’t worthy, but because the speed at which they are being applied means they will increase the cost of renting. Improving the lot of tenants is a worthy cause — but it must always be weighed against the cost to those who rent.
5. KiwiBuild
Arguably the flagship policy of the current Government, KiwiBuild came in with bold claims that it would lead to 100,000 new homes within 10 years and would bring down the cost of housing. It achieved neither, and within two years the policy was gone — a victim of confused objectives and a lack of understanding of how the property market works.
Successive governments have had trouble hitting the nail on the head when it comes to building housing policies