House prices not such a ‘ great problem’
Chief executives understand need to intervene to cool property market
Frankly, the Government is not doing nearly enough. It is time it explored some more tools.
inance Minister Bill English’s PR mantra that the pressures on the Auckland housing market are “a great problem to have” may be true at a rational level.
But chief executives’ concerns that younger New Zealanders are being priced out of the Auckland housing market will not have been assuaged by English’s arguments at this week’s Mood of the Boardroom debate. Nor should they be. The country’s top business leaders are looking to the Government to get much more active, with strong support for various interventions such as the foreign property buyers’ tax that Vancouver recently applied to overseas investors to brake its own snowballing housing market.
Cracking down on negative gearing that residential property investors frequently use as they leverage up their investments in the sector is also favoured.
But there is little support for the suggestion that house prices in Auckland should be deliberately collapsed, as advocated by former Reserve Bank chairman Arthur Grimes and by former Reserve Bank governor Don Brash.
English says it all comes down to supply.
“We are happy, in a sense, to be dealing with the pressures in Auckland because it has been created through population pressure,” he told the breakfast debate.
Business gets this argument. This is a great short- term problem to have as it does provide a good barometer of faith in the overall economy.
But not when the upshot is that housing affordability pressures are also getting out of hand.
It is reliably understood that English and his advisers were surprised that 70 per cent of chief executive respondents to the Herald’s 2016 CEO Survey agreed with the proposition that the Government is not doing enough to dampen house price inflation — particularly in Auckland.
English gave a polished performance when he debated with Labour’s shadow finance spokesman Grant Robertson on Tuesday.
There is a strong belief among CEOs that the Auckland residential property market will continue to strengthen, with 62 per cent saying they are not concerned it will stall.
Some of the other metrics from the CEO Survey are compelling. The Herald asked chief executives to rate on a 1- 5 scale the significance of various factors in driving the increase in Auckland house prices.
On a scale where 1 equals not significant and 5 equals very significant, the CEOs agreed with English that lack of supply — rated at 4.56/ 5 — was the leading factor.
But there were a suite of other factors contributing to the issue. Among them: increased net migration rated at 3.97/ 5; low interest rates rated at 3.95/ 5; domestic speculation was 3.88/ 5; foreign investment 3.5/ 5 and the absence of a full capital gains tax also scored 3.5/ 5.
The sentiment among chief executives acknowledged the supply issues, with several suggesting the need to encourage developers and investors ( both local and foreign) to acquire land and redevelopment projects and get on with building homes and apartments.
Others suggestions were that affordable housing should be solved by public- private partnerships if possible, or private investment; the National Policy Statement on land should get traction quickly; and the Government should assist development at scale by aggregating land and providing development opportunities to the market, to deliver big new subdivisions, including mixed use, mixed tenure, and live, work, and play developments adjacent to transport services.
It is clear that the majority of chief executives believe the Government could be doing more ( see table).
There was overwhelming support from 57 per cent of survey respondents who favoured the Government funding a major housing programme to provide affordable homes in Auckland.
The Herald survey also looked at what action local authorities — in particular Auckland Council — could apply to reduce housing pressures.
Again, chief executives favoured an interventionist approach.
57% favour the application of a substantial differential rate to “banked land” to incentivise owners to make it available for housing.
40 % favour proposals to abolish metropolitan urban limits, with 37 % against.
57% favour proposals for local authorities to free up their own land assets ( eg golf courses), consistent with projected population growth.
81 % favour the establishment of satellite towns or cities to service major metropolitan areas.
English may be right that “dumb planning” has exacerbated the housing shortage, as the Herald reported earlier in the week. Another 6000 houses in East Tamaki and Northcote is just a step in the right direction.
The Government has introduced the “bright line” test for housing investors. The Reserve Bank has also introduced a raft of measures.
But frankly, the Government is not doing nearly enough.
It is time it explored some more tools.