The houses that Bishop won’t build
Recent first 100-day policy announcements show that the Government is tackling New Zealand’s housing crisis. Piecemeal. Tax relief for landlords was one. Housing Minister Chris Bishop’s speech the other week that the Government will free up land for new housing was another.
Following a tenuous logic, Bishop claimed that people need to live in big cities to increase the country’s productivity and so needed more houses for people moving to them to live in.
Making more land available for housing is the solution. Going for Housing Growth policy deals with the underlying causes of our housing crisis, he said.
Prime Minister Christopher Luxon previousdly claiming the rental allowance for his Wellington apartment subtly undermines these announcements. The associated reporting on his property portfolio tells us how he sees New Zealand’s housing and the national economy. It is not encouraging.
His portfolio neatly illustrates how housing in New Zealand serves two completely different purposes. The first is for the Luxon family to have somewhere to live – their Auckland home.
The second is to use housing as an investment vehicle, somewhere for Luxon to park his money and grow it – the four rentals and holiday home. Yet the Luxons, with their multiple properties, are no different from many other New Zealanders in this regard, we are a country of amateur landlords and land speculators.
It is this investment purpose of housing that is so problematic for New Zealand. It establishes a group of purchasers with different pricevalues and ability to pay than those purchasing houses for living in. The expectation of realising capital gains, aided by a banking sector happy to clip the ticket, means that these investors can afford to price out those wanting homes.
Prices are inflated by other actors that together increase demand but also reduce supply to drive up prices and reduce housing availability.
Housing also provides safe havens for foreign capital. For example, Russians own around 17,000 properties in the UK. National’s election promise to make 50,000 homes available for purchase by foreign buyers must be attractive to Chinese and Hong Kongbased residents for the same reason?
Real estate agents reported spikes in overseas interest following Russia’s invasion of Ukraine, suggesting this driver is not trivial. Years ago, a third of Queenstown rates bills were sent overseas, more to solicitors and accountants. Queenstown is part of the European and US, not New Zealand, real estate market. Increased demand from massive recent immigration will not help here, either.
Market manipulation by restricting housing and land supply doesn’t help either. Data from the 2018 census suggest nationally there are some 9500 “ghost houses” kept intentionally empty. A further 41,000 are second or holiday homes.
Land-banking is another factor. The Post recently reported that one family owns most of Wellington’s greenfields expansion land. Auckland was found to have some 29,000 under-developed properties with an average value of $1 million before Covid. None of these land-bankers would want to dump this land on the market and destroy their anticipated capital gains.
Bishop said land zoned for housing can be four times as much as adjacent farmland, supporting my students’ research on Pukekohe land prices.
Market gardeners grow onions but farm capital gains. Perhaps more worryingly long-term, housing as investment undermines our productivity that Bishop wants to increase. Property is New Zealand’s largest industry, contributing $41 billion to our GDP – one and a third times manufacturing and nearly three times as much as agriculture.
House building stimulates the economy but it also starves manufacturing and other sectors of capital they need to grow. It doesn’t increase export earnings or productivity. But no government wants to remove the asset component of housing that makes housing as investment so attractive: to do so would crash propertyowners’ wealth and the economy.
Piecemeal solutions, such as freeing up land for more houses and tax relief for landlords just encourages housing as investment, not for homes.
Rather, we need to start having some serious discussions to resolve a very dangerous, wicked problem we have all bought into and consider where our economy should be going long-term.
The recently abolished Productivity Commission might have been able to advance that conversation.