Written By:
Anthony R0bins - Date published:
9:42 am, July 17th, 2013 - 48 comments
Categories: housing, labour, national -
Tags: housing affordability, KiwiBuild, reserve bank
Houses are seriously unaffordable, especially for first-time buyers.
Labour has proposed a capital gains tax, to try and take some of the heat out of the speculative market (cash rich investors snapping up all the houses for capital gain), and KiwiBuild to build 10,000 new houses over the next ten years. These policies will help first-time buyers.
The Reserve Bank under the current government is proposing tougher requirements (a higher deposit) on mortgage loans. This policy will make it even more difficult for first-timers. It isn’t proving popular:
Growing opposition to Reserve Bank housing restrictions
Getting a mortgage to buy a house could be about to get a lot harder. The Reserve Bank’s inching towards restricting the amount of money banks can lend to certain customers, in an attempt to cool down a red-hot property market. But that could put mortgages out of reach for many first-time buyers.
…in most cases, buyers will have to save up a bigger deposit, perhaps 20 percent, which, for a $500,000 house, would be $100,000.
… Labour wants an exemption for first-home buyers. “They’re going to make it much tougher, particularly for low and middle-income first home buyers, to get into the housing market,” says Labour housing spokesman Phil Twyford. “And bizarrely they’re actually going to give an advantage to property investors and speculators.”
Housing is a deal-breaker. It is a major issue for young families and workers, it is a major issue for many of the boomer generation who are wondering if their children will ever own homes of their own.
First-time buyers are much better off under Labour’s policy settings. The only way to get them is to vote Left. Parties of the Left – take this issue and run hard!
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Oh, there’s a surprise. Labour’s solution to the housing crisis is a nice gift (maybe worth $40,000, or three years of benefit moneies) to kids of the comfy for brand -spanking-new first homes. There will be more than a few that start their property portfolio with the help of the comfy middle class party’s pressie.
But never mind. – there’s always the trickle-down. And doesn’t this policy provide wonderful opportunities for pissing all over the poor as they compete hunger-games style for the ptifully inadequate numbers of state or council homes, or to pay lum slords most of their meagre income for any kind of roof over their heads.
And yes I know it is Labour policy to increase numbers of state houses – from inadequate to still utterly inadequate. And I’m sure social housing will be a reeaally high priority for thm. Not.
What do you think the answer is? Serious question, not a dig.
I dont have any faith in labour but I couldn’t see how the proposed change by RB is going to change housing affordability, at all. I admit I haven’t read widely on it though.
Reinstate the State Advances Corporation. For a large chunk of the 20th century, they provided 95% mortgages. It worked, and it worked well.
the Greens’ Progressive Ownership is essentially State Advances (ie. the government passing on its low borrowing cost to first hme buyers) with the difference that the govt does the house building too for better planning, better quality. And, as its a shared equity scheme rather than a mortgage, there’s no default risk, no deposit needed.
The government doesn’t need to borrow and so shouldn’t. They can print the money and make it available at 0% interest.
Pete +1
Also greatly increase the number of state houses, get rid of market rentals, and enable secure long term leases.
Labour’s current proposals do not confront the trading banks fuelling the housing market with more and more debt on exactly the same house.
It also does not confront the wealthy and the middle class investor types who are out there and own 8, 10+ houses themselves (or through their children, their trusts etc) as speculative investments.
Nope, they actually encourage the banks to increase lending thus putting NZ into ever more debt with the banks creaming it.
The whole toolbox needs to be chucked at this issue.
Remove incentives for professional landlord’s. All this does is encourage investors to buy up homes and bank on making a capital gain, while effectively paying no tax and having the interest and rates serviced. A CGT would go part way to addressing this, but IMO there are a range of other tax levers that need to be pulled together. Would be very unpopular in the investor community, but needs to be done. Currently, it can actually be cheaper to own a 90% lent, 3 bedroom house in Wellington with an aggressive repayment plan than it is to rent a similar house. This is outside of the social housing context, which could potentially be used more as a market balancer.
Look at the supply side of housing. There is clearly a lack of supply in some areas. The kiwbuild programme, Greenfield development, intensification, and streamlining of consenting are all mechanisms that can address this. The lending criteria around new builds is also quite strict, there may be room offer a first-home programme that encourages new building to enable first home buyers to build (within limits of course). Same goes for apartments – banks wont lend more than 50% for either of these.
Intensives to encourage occupants of prime family homes to sell and move to more appropriate homes. I recall a number of housing needs studies showing that there are a huge number of older single or couple occupants in 3-5 bedroom homes where the kinds have since moved on. Encouraging these people to move to a smaller, more appropriate house could potentially open up significant supply of the housing in the most demand.
Look at whether anything can be done to incentivise migration to provincial NZ. has a degree of central planning about it, but are there opportunities to relocate some bigger govt operations to places like Hamilton, Palmerston North, Dunedin etc. Alternatively, are there tax levers or similar to encourage large employers to go there rather than place with massive housing pressure?
My view is that there is no one single solution, it will take a concerted effort across a range of areas to truly make housing more affordable and accessible without leaving thousands of families badly overcapitalised.
I agree with you that the book needs to be thrown at the issue. On this specific point however I go with Steve Keen’s line: there needs to be incentives for professional landlords ie. those buying and holding property in order to gain a reasonable return through rental income, as opposed to property speculators who are looking to make their money through capital gains and simply rent out the property inbetween flipping it.
Agreed. There are still people who prefer to rent rather than buy, and these need to be catered for. I would think though that such professional landlords would need to be subject to licencing, and perhaps we should regulate so that renting out properties is illegal without a licence.
CV
What bothers me is that the returns that some landlords want are based on the annual valuation of the house so that they want a certain percentage return on today’s inflated value and then another rise for next year’s valuation. If rates were set on the historical value plus maintenance and improvements it would be fairer to renters.
I see no need for professional landlords. State housing could easily supply all the needed rentals and they could do it for cost because the government doesn’t need to get the money that it spent building the homes back.
A green led government.
A green led government.
Crripes Tinfoil. Government has three syllables. A bit advanced for you.
Housing affordability need not just be linked to the price of houses. Getting our incomes up with coherent, successful export policies would help.
just saying
You’re right about the likely reactions of the ‘comfy’ middle class. They can do well all right. Some I know can’t settle anywhere as they are constantly having wet dreams of the sort of house and property they could be in and sell up and move on. Very strange attitudes of these spoilt for choice young parents (who got considerable assistance from doting parents).
Yes totally agree with you, Labour present to New Zealand a housing policy of,for and by the middle class while not really expressing one big fat f**k about the growing numbers of ‘less than middle class’ who will never even begin to ‘hope’ for home ownership,
A % of those bright young things with their high earning tickets to the middle class, the uni degree, will go on to, like their parents befor them add to the problem of housing affordability by once gaining equity in the first property financed in part by the taxes of those who have only their labor to offer in this economy, become the landlords of the future,
Thanks Labour for nothing, the Mene Mene’s of this world, poor manual working stiffs who cannot even begin to save for the deposit, bond, etc needed to get into a simple rental property will have the taxes they pay sucked up by the children of the middle class to pay for their home ownership,
(Mene Mene is a manual worker featured on a couple of ‘Campbell Live’ programs, His wages and hours of work offered allowed Him his 3 children and His wife the ‘luxury’ of 1 room in an Auckland’ boarding house, there are 1000’s if not 10’s of 1000’s of Mene Mene’s who daily toil in our economy for the same pitiful result),
This discussion has oft been aired here through the pages of the Standard and my view has hardened to where i see the Labour Party ‘KiwiBuild’ policy of shoehorning the children of the middle class into home ownership as a direct attack on those who are ‘less’ than middle class,
Amidst this discussion we had then Labour Housing spokesperson Annette King at least conceding that perhaps Labour would need to look at the numbers as far as affordable Housing NZ rentals went, She got reshuffled into another portfolio and a resounding silence has emanated from Labour since,
What will pull the ‘heat’ out of the Auckland housing market in particular is a serious, ongoing, sustained State House building program which simply takes away from the middle class the impetus to own second and third houses as rental property’s,
Anything else is simply ‘class war’ waged against the poor, where the labour of the Mene Mene’s of the world is translated through the distribution of the very taxes the Mene Mene’s weekly toil to pay upward into ‘home ownership’ schemes by supposedly left wing Party’s that are soley focused upon the ‘needs’ of their own kind…
Yep, the government should ensure that there is always a 2 to 3% over supply of housing at low, low rental.
I’d be quite happy to see some legislation that enabled the right to securely ‘rent for life’ with a private landlord…
Can’t see many landlords chomping at the bit for that one – they have everything to lose and nothing to gain from such an arrangement. If you have a good tenant that you want to keep on long term, there’s nothing stopping you from signing a 5 or 10 or x years lease as it is.
Perhaps someone with knowledge of the European situation could explain a bit about how they do long term/life long leases over there.
I know in a number of places it is heavily regulated, especially the apartment market – body corporates are extremely strict.
I have a sister in law in Denmark who is renting out her Apartment, to get around the laws around long term tenancy she either rents to students or a fixed term contract which is just shy of the tripping point regarding long term occupation. Apparently it is a fairly common approach for those that are renting out a flat and don’t want to be stuck in a long term agreement which is governed by law.
As with all these rules there are work arounds and unforseen consequences and generally In my experience a landlord doesn’t want to lose a good reliable tennant so will treat one well rather than risk changing tennant for an extra $20 a week
cricklewood
I think a point you make about not wanting to lose good tenants, would really come into play if we could get wofs on tenanted properties so they couldn’t be left to deteriorate.
In Australia some decades back there was a tv clip on a consumer channel where some agent would deduct all the bond for a few marks on the wall (despite most agreements allowing for fair wear and tear). So that sort of fanaticism would need to be prevented but money spent would keep good tenants, and good tenants would probably have longer tenancies at reasonable rates from reasonable landlords. Seems a great solution.
CV
I would like to know how the Europeans deal with it. They go to the extent of sometimes signing a directive that is sort of an extended option that they will give first offer to somebody, and possibly this involves a payment. That is when someone desires a particular location. Also in Britain people have a long lease sometimes and decorate the place themselves except they can’t structurally alter it I think.
Cheers for the info, all.
Vienna – minimum rental contract is three years. Landlords like up to ten years but ours was negotiated down to 5 years. Rent controls are in place, generally below market rate – current yield in the inner city is 2-3 percent. Bonds are up to three months rent (so going in on NZ dollars required a loan however a nice little bonus for when we leave).
There is high progressive tax on incomes earned from rents and progressive capital gains tax if the property is sold before 10 years.
The city is heavily involved in subsiding in rentals, owning properties (220000 apartments) and ensuring housing large amounts of affordable housing is built by working with housing associations – from land acquisition and housing development design stage right through to rentals.
Importantly, to keep up with housing needs and new ideas, Vienna has it’s own housing research department
which aims to
There are significant differences between the public and private housing markets, but potential investors are warned that legislation is tenant-friendly.
Overall, the housing research department has noted that
Looked at as a simple matter of numbers it is easy to see where home ownership became unaffordable,
The seeds of this where sown by Governments 30 years ago, the growth of the New Zealand population from 3.3 million to 4.4 million in a 30 year period whilst the State stopped building State housing is the direct root cause of today’s ‘unaffordable home ownership’,
For a population of 3.3 million we had 75,000 state houses, with a population of 4.4 million we now have only 67,000 state houses, numbers alone would suggest nay demand, that there be at least 100,000 state houses,
So, being ‘light’ by 30,000 State houses has created demand in the economy for rental housing which the ‘middle class’ have gladly catered too,
‘Fixing’ home ownership for the middle class simply leaves the 10’s of 1000’s of low waged manual workers as the ‘victims’, unable to access affordable State Housing, never being able to even dream of home ownership, it is the low waged manual workers of our economy who will be truly paying for the likes of Labours Kiwibuild home ownership program through their taxes,
In return it will be the low waged manual workers of our economy who will be trapped, paying rentals to the very people who created the supposed crisis in the first place, mere slaves to the middle class…
bad 12
1960’s NZ – 3% loan with child payment capitalisation allowed for young families, up to a level of income and if one could earn more the loan became 5%. Nice houses. People settled and had their families and mowed their lawns and did their gardens and worked and looked after their children and had a life.
Wasn’t all perfect, but what a good system with a government that worked for not against the population. Arguments there were in government and so on, but people weren’t abandoned to this shape up or ship out you scum mentality. How did a democracy get these shithouse rats we have now, and the others may be better-bred but still are rats.
In socio/economic terms whilst the population has grown from 3.3 million to 4.4 million and State housing slumped to a shadow of what the population statistics suggest it should be, 67,000 houses, the demographic, apparently irreversibly changed by ‘Rogernomics’, has also changed as far as the tenancy of the remaining State Housing stock is concerned,
Up to the early years of the 70’s the majority of the State Housing stock was allocated (on the basis of need) to the low waged manual labour workforce, this demographic radically changed as the ‘restructuring’ (spit) of the economy built a new beneficiary class who then became ‘more’ in need of State housing then the previous manual workers,
What is needed especially in places of high demand is a new model with which to operate the whole State Housing portfolio, which would see the number of State houses double in 30 years, a two tier system is needed where the current demographic of tenants are housed under the present system and a second tier system is gradually inserted into the mix where for every State House rented on specifically ‘social grounds’ there is a State House rented to a low waged working family at 25% of family income up to the market rent,
Such a system would mean that in dollar terms the ‘low waged working tenants’ would be paying at ;least double what the beneficiary tenants pay, but both demographics paying 25% of income, thus the low waged working tenants would be providing the subsidy that Housing NZ currently garners via the general tax base, a simple self funding system of low cost rental housing…
Market rent for such low waged families is often 50 to 60% of income.
Your comment stems from taking part of my previous comment out of it’s intended context, yes ‘market rents’ paid by those renting from the private sector is now often 50+% of wages,
HousingNZ tho has always operated off of a different definition of ‘market rent’,
The focus of my previous comment was on the demographic shift in the majority of HousingNZ tenancies from what used to be predominantly low waged workers to beneficiaries,
This shift in the demographic has occurred within the same period of time as the population has grown by over 1 million and the HousingNZ rental stock has been reduced by 1000’s,
In strict dollar terms as far as the Governments books are concerned this demographic shift has resulted in the direct government cash subsidy to HousingNZ reaching some 600 million dollars a year,
My point is that HousingNZ is, in terms of efficient use of capital, is operating on an incorrect model, what is needed is a doubling of the HousingNZ rental portfolio where for every beneficiary housed under the terms of the social contract a low waged working family is also housed,
Obviously, the low waged working families housed would pay 25% of their total income as rent just as the demographic of beneficiaries do, the difference being that the actual cash amount paid by the low waged working families would tend to be higher than that of beneficiaries thus creating a cross subsidy and dramatically lowering the amount of the direct cash injection from Governments on an annual basis…
Actually, I was just pointing out that low waged families would never pay market rent.
Then someone is lying.
Which is a load of bollocks. Not getting the income is not giving a subsidy. Especially in the case of HousingNZ as that income just wouldn’t be there at all, instead we’d have even more homelessness.
Yep, I’m quite aware of that which is why I suggested it here. It’s the economists, the RWNJ and idiots on the left that want to get rid of all subsidies. I, on the other hand, realise that society only works because of those cross subsidies.
As an opponent to labours crap solution and that 100k houses to 1st time buyers was totally flawed ( there are not 10k new buyers pa potentially available to enter the market, I see r0b that this policy has been according to this post watered down to 10k new houses in total.(perhaps there is a typo ?)
But don’t worry think of how govt intervention will be required when reality hits and a std house in the burbs is not worth $800k as currently especially on incomes of $50k pa. interest and rates commence to increase but hey 1% increase will only rest in $2-3k reduction in disposable incomes. Then the middle class will find out how close they really are to the poor.
One of the drivers of increased demand for housing is that we appear to be less and less willing to live with each other. It’s a trend that has been in place for 60 years.
From StatsNZ :
Because of the increasing number of smaller households, the average size of households is projected to slowly decline between 2006 and 2031, from 2.6 to 2.4 people per household. This continues the decline seen in recent decades, with the average household size falling from 3.7 people in 1951 and 3.0 people in 1981.
http://www.stats.govt.nz/browse_for_stats/population/estimates_and_projections/projections-overview/nat-family-hhold-proj.aspx
I usually agree with most of you fellow Lefties, but not this time.
Two-thirds of every dollar you and your neighbour borrows on your credit card or for a mortgage is borrowed from an overseas lender. We cannot force them to keep lending to us (as we saw in 2008-2009).
What happens if the NZD continues to go down and NZ unemployment rises? They will demand higher interest rates or they will not lend us the money which fuels our economy and property market. If interest rates continue to rise in the US and Germany, lenders will demand higher interest for the additional risk of lending to a tiny country which has not had a positive balance of payments in 30 YEARS. (An appalling record only matched in the OECD by Greece and our biggest trading partner, Australia.)
We can’t print money. These lenders are not fools. They won’t want to be repaid in a debased currency.
All the other get rich quick schemes have peaked and are going down: gold, bonds, shares, emerging markets, commodities, currencies, etc.
The property balloon burst overseas in 2008-2009. Now it’s our turn and for exactly the same reasons.
You can’t “fix” this problem. The pain has barely begun.
We don’t need to lend foreign money – we just need the government to start creating our own and start lending it out at 0%.
The risk you take when you loan money is that you won’t get it back.
Well, actually, we can. Will we be allowed to? That is the question and the banks don’t seem seem overly keen on the idea.
EDIT: BTW, IMO, if the government took over the creation of NZ$, took that power away from the private banks and spent the money directly into the economy the NZ$ wouldn’t debase. I think it’s value would actually increase.
“We don’t need to lend foreign money – we just need the government to start creating our own and start lending it out at 0%.”
Effectively you go back to the pre-float days when the NZD was not internationally exchangeable.
Then the government decided who could and who could not buy foreign currency to buy goods and services from overseas. I don’t remember those days, but some of my older relatives do.
Ask the “old folks” what it was like when there were NO choices about the brands of consumer goods available in our stores. Ask them about how they were could not travel abroad because they had to show their airline ticket at the bank and then were allowed to buy some paltry sum of foreign currency ($50 in today’s money) for each day they would be overseas.
Yes, it can be done. But is that the world you and your friends want again?
Why? There really is no need to do that.
Why would there be no choice?
@ Draco
If we print limitless amounts of NZ dollars, please explain to me why a foreign lender would want them? Why wouldn’t this be hyper-inflation? Toyota wants to be paid in Yen, Boeing in USD, etc. Why would they want to be paid in Monopoly money?
Regarding consumer choices: Rather than a lengthy explanation (which would be perfectly logical), please ASK older people what shopping was like when the NZD was not internationally exchangeable. ASK.
I remember those days. It was hard to buy a new car, chickens from the butcher tasted really good, we had a roast every Sunday, fresh eggs, there were plenty of fish in the sea, people would stop to offer you a lift, you had to chase horses and pigs off the footy field before a game, we only locked the house if we went away on holiday, which we managed once a year, and we only had about 4 types of cheese. On the other hand, society was probably almost as racist as today, and gay bashers were open and proud, while young women seemed to mysteriously put on weight and then disappear for a couple of months.
Consumer choice? I don’t remember wanting anything that wasn’t available.
“Then the government decided who could and who could not buy foreign currency to buy goods and services from overseas. I don’t remember those days, but some of my older relatives do.”
Not necessarily. The banks would still buy and sell overseas currencies. In the old days the government controlled the buying and selling of overseas exchange because of the need to maintain the value of the local currency, in accordance with its Bretton Woods undertakings.
Hyperinflation. If the government prints limitless amounts of NZD, how do you avoid hyperinflation?
Have you ever been in a country with hyperinflation? I have. It is economic devastation.
Why would the government print “unlimited” amounts of NZD? What is wrong with it producing just some NZD, without overdoing it? You seem to be setting up a straw man.
This is what happens when you give a bunch of academic dick heads with Masters and PhD’s in economics the opportunity to actively get involved in an economy. Send them back work in universities and let the economy look after itself.
Good news if the Dunedin City Council introduce wofs annually inspected rental places. It could cost $500 and might get added to the rental. So? At least landlords would be expected to meet their already legally demanded obligations.
The property owners spokesperson doesn’t want it and managed to produce the usual confusing and diminishing arguments – scorn on its stupid uselessness – the wof was going to cover whether there were taps for instance. And made the argument that it was unnecessary because of that. He even said it was demeaning to the tenants who could check that themselves.
And made a point that instead of this wof there should be one aspect of it concentrated on – insulation etc. (Dunedin has decided that there are too many cold and damp tenancies with uni students too often being offered substandard ones.) Of course warm dry places would be a major, but not the only, part of the wof.