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National and the Greens on how to solve the housing crisis

Written By: - Date published: 11:04 am, March 17th, 2021 - 71 comments
Categories: capital gains, greens, housing, jacinda ardern, labour, national, poverty, tax - Tags:

Over the past week National and the Greens have released housing policy designed to address the country’s current housing crisis.

National’s policies are somewhat predictable, and involve mostly reaffirmation of current Government policies while trying not to give the impression that they are doing something different.  From Nicola Willis on the National Party website:

National has also asked the Government explore these immediate actions:

  1. Strengthen the National Policy Statement on Urban Development: The Government should bring this urgent rezoning of land by local authorities forward, and increase the competitiveness margin, to enable intensification and growth.

  2. Remove the Auckland Urban Boundary: This arbitrary line has been found to add $50,000 or more to the average cost of houses in Auckland. The Government committed to removing it in 2017 but progress has stalled.

  3. Make Kāinga Ora capital available to community housing providers: Proven social housing providers have land and consents for new housing projects ready to go. The Government could make these projects happen immediately by releasing some of the taxpayer funding ring-fenced for future social housing.

  4. Establish a Housing Infrastructure Fund: This would help local government finance the pipes and roads required to accelerate rezoning of land for Greenfields developments.

  5. Implement new finance models: The Government should work with industry to develop finance models that leverage Accommodation Supplement and Income-Related Rent entitlements to drive new housing development.

My comments in response are:

  1. Phil Twyford and Julie Anne Genter have already ushered through the National Policy on Urban Development which allows for significant intensification in urban areas around public transport routes.  It was introduced in August 2020 and it will be years before its effects are understood.  Demanding that it be strengthened immediately is rather silly when we don’t know how much effect it may have.
  2. Removing Auckland’s Urban Rural boundary was announced by Ardern at the speech to the throne in 2017 but thankfully not proceeded with.  To be frank it is a silly idea.  All that would happen is that Auckland’s fertile lands would be gobbled up in urban sprawl, congestion would worsen, Council’s finances would be stretched to breaking point from the need to finance infrastructure and Auckland greenhouse gas emissions would go through the roof.  Urban sprawl and car reliance go hand in hand.  Better to build up than to build out.
  3. Making Kāinga Ora capital available to community housing providers would not result in any new homes.  All that it would mean is less Kāinga Ora homes being built.  Presumably this is the intent.
  4. Establish a Housing Infrastructure Fund?  Already done.  There is the Government tool that allows councils to access private debt finance to build infrastructure.  There was also the Provincial Growth Fund set to morph into a Regional Growth Fund.  For road building there is a fully funded ATAP.  National’s version had a $5.9 billion hole in it.
  5. The new finance model sounds like more state support for landlords.  We have had way more of this than is good for us.  Just look at the current housing market if you need proof.

By way of jarring contrast the Greens have also announced their policies to address the housing crisis.

From the Green Party website:

The Green Party is calling for bold, transformational measures to stop the accelerating housing crisis that is locking New Zealanders out of a stable home.

  1. Removing tax incentives for investors by removing the five year cap for the bright line test.
  2. Regulating investors’ access to mortgages, including
    • Ending interest-only mortgages,
    • Putting restrictions on debt to income ratios, especially for investment properties,
    • Requiring cash deposits for mortgages on investment properties, not just equity from other homes.
  3. Direct economic stimulus from the Government in the form of income support, instead of relying on the Reserve Bank.
  4. A massive urban redevelopment and home building programme led by Kāinga Ora, until supply matches demand and prices stabilise at affordable levels.

“Everyone has the right to a decent, affordable home, but house prices are out of control. Auckland’s median house price increased by $100,000 in February alone,” Green Party Finance spokesperson Julie Anne Genter said today.

Removal of the time limitation for the bright line test is an interesting proposal.  As pointed out by Incognito the Government is considering extending the bright line test period by a further five years.  When the IMF is telling you to get the situation under control you know there is a problem.

Labour’s previous decision not to proceed with any form of capital gains tax I thought was retrograde.  Sure the proposal posed difficulties in terms of valuation of businesses.  But a capital gains tax for land was simple to impose.  Through the Land Transfer system the state controls the transfer of ownership.  And already sufficient data such as price, personal details and IRD numbers is collected, each time land is sold, to allow IRD to fairly quickly assess tax on a transaction.

The proposal to get rid of the time limit for the bright line test is a simple way to impose a comprehensive capital gains tax exempting the family home.  And all they are doing is altering an existing tax, one actually introduced by National.

As for the Green’s other proposals providing economic stimulus in the form of income support is in modern terms somewhat radical, but not unprecedented.

Back in 1935 Micky Savage successfully used it to help wrest the country out of depression.  From the New Zealand History website:

Savage was greatly distressed by the suffering he witnessed during the years of the Great Depression. He travelled the country spreading the Labour message with an intensity and evangelical fervour seldom matched in New Zealand politics. He maintained that all citizens were entitled to ‘a reasonable standard of living in the days when they are unable to look after themselves’.

This message struck a chord with voters and in 1935 Savage led Labour to a resounding victory. As a statement of intent a Christmas bonus was immediately paid to the unemployed and those receiving charitable aid. Relief workers were given seven days’ annual holiday. In 1936 there was a landslide of legislation aimed at stimulating the economy, including a programme of state house construction.

Regulating borrowing for speculation is a no brainer.  The massive urban redevelopment and home building by Kāinga Ora is happening.  You just have to travel through parts of Mount Roskill or Mangere to see what is under way.

National’s proposal are tired, and either borrow from what is already happening or represent their doctrinaire view of the world.  The Green Party proposals are well though through, somewhat radical, but something I think Micky Savage himself would approve of.

The Government had indicated that an announcement of policies addressing demand pressures is imminent.  It will be interesting to see what they do.

71 comments on “National and the Greens on how to solve the housing crisis ”

  1. Pat 1

    "The Government plans to use a carrot to incentivise investment beyond housing, as well as a stick to deter speculation in the property market.

    Finance Minister Grant Robertson on Tuesday said the package of housing policies the Government is due to unveil next week will include a “mixture of both incentives to go [invest] elsewhere and disincentives within the housing system”.

    Prime Minister Jacinda Ardern framed the issue in a similar way on Monday.

    She said the Government was considering why there was an “extra psychological imperative” in the COVID-19 environment that's made housing feel like the safest investment.

    She said the Government had to do “multiple things” to ensure it was “encouraging people to build, and encouraging people to look at alternative investments that contribute to our productive economy”.

    Neither Ardern nor Robertson shed any light on what these “incentives” would look like or whether they would involve the tax system."


    A week to see what Labours idea of 'bold' involves.

  2. Nic the NZer 2

    Can somebody elaborate on the meaning of number 3 in the Greens policy?

    It sounds promising, but it also seems to have happened already (e.g the wage subsidy) so what is being proposed different?

    • mickysavage 2.1

      Currently the Reserve Bank is acting to keep interest rates artifically low to stimulate economic activity. The Greens are advocating for cash payments to everyone to achieve the same result.

      • Pat 2.1.1

        That is if you accept the narrative that is the reason for low interest rates….the landscape looks quite different if you consider low interest rates are designed to stop the defaults and save the banks .

        • KJT

          Yes. The aim of most Governments policy However I suspect the main driver is simply competition offshore, outside our control.

          Former big borrowers, such as multinational's, are so flush with cash they are not borrowing.

          Expanding consumer credit, is the banks main path to profitability.

          Even the banks know that if you take too much, the debt slaves will have to default.

          • Pat

            The aim is growth…but not the growth that most people assume, but rather credit growth. Credit growth replaced output growth as the driver years ago.

            Deflation is to be avoided at any cost.

        • Nic the NZer

          That seems to be a distinction without a difference. If the RBNZ provides low interest lending to banks they can pass that on to borrowers while keeping their margin (and so profit) which fits at least part of what is happening. Supposedly this encourages economic activity, though at some point the question will come up for borrowers of how they will support that leverage.

          Of course this also reduces the interest rates on government borrowing and replaces the reserve drain from the system of govt borrowing to cover its deficit and results in the RBNZ owning more govt debt.

          We can interpret the intention to be these, a combination of these or many other intentions.

          On the other hand there is not widespread default happening at present. Your counterfactual is an economy where the RBNZ decided interest rates should be much higher and don't intervene to reduce them. In that case sure it is conceivable that wide spread defaults were occuring because of RBNZ miss-management, sure. That is not what is happening to have the RBNZ start running QE however, though coincidentally it was started when the govt started running a large deficit.

          • Pat

            What a very verbose way of saying .." its all down to intent"… the RBNZs primary purpose is the stability of the financial system….as the Governor has stated on numerous occasions, central banks dont do fiscal policy.

      • AB 2.1.2

        That assumes that business will borrow money to invest in increasing production, employing people and selling more stuff. But the incomes of the imagined consumers of this increased production have gone nowhere in years. Knowing this, a rational business would borrow cheap money to cut production costs and increase margin on existing ouput by shedding jobs, more automation, process efficiency, etc. Or they'd buy back their own shares, or not borrow at all.
        The purpose of the low interest rates is therefore to replace disappearing consumer income with consumer credit – in a way that doesn’t put the banks at risk by massive defaults. Looks like a house of cards.

  3. RedBaronCV 3

    Well it will be really interesting to see what Labour do. At the moment we really need all the housing stock coming onto the market at the lower end to be available to the FHB not to investors. We also need any empty houses in the main towns to be pushed into service. Then we need to build enough house for the remaining unhoused people.

    At the moment we really need to skew the buying market towards the FHB not the investor to start unravelling the headlock on the market that investors have so that rents start to ease bringing more houses onto the market and letting the rental spiral unwind in favour of ownership.

    At the very minimum it would be good to see:-

    Very high LVR's for investor deposits say 80% to 90%.

    A high debt to income ratio for investors – put one on and then arrange for it to go up in steps over a relatively short period of time so that housing comes back on the market in stages. So properties basically cannot be run at a loss.

    Extend the big line test and make it a Gains tax only no capital loss deductions allowed.

    And perhaps a small year on year tax for rented property based on the capital value – 2% to 3% and a much higher charge on unoccupied property.

    A sunset clause on selling apartments or allowing commercial property to be converted to residential for overseas buyers. Maybe 2 years to let current developments to be finished then its over no more foreign ownership.

  4. KJT 4
    • Requiring cash deposits for mortgages on investment properties, not just equity from other homes.

    Probably work for cooling speculation. Hopefully with a way for otherwise cash poor people, to fund deposits to get their kids into houses. At least until prices drop enough against wages.

  5. Castro 5
    1. An annual Capital Value Levy on non-owner-occupied accommodation, i.e. 2% of the value of the first investment property, 4% on the value of the second investment property, 8% on the value of the third, etcetera… levied through rates, on an ANNUAL basis.

    2. A foreign buyer ban, i.e. no Australians, no Singaporeans, no foreigners buying apartment exemptions, no foreign residents.

    3. Rent controls; $150 per bedroom per week, maximum.

  6. Ad 6

    What's the division of responsibility here between MP Genter as spokesperson on building and MP Davidson as Minister of Housing with a special responsibility for homelessness?

  7. Jackel 7

    Interest rates must remain low indefinitely. Interest rates can never go up again. Both impossibilities. Watch all the crying and gnashing of teeth if interest rates ever do start to go up again as surely they will.

    • mickysavage 7.1

      My impression is that interest rates are low because the rich have accumulated that much wealth that there are no longer profitable activities to invest in. They already have these maxed out.

      • Jackel 7.1.1

        Well, it's a complicated area as to why monetarism which is a part of neoliberalism is failing to resolve the problems it has largely created itself. But money chasing money has created this unnecessarily complex financial system that's anyone's guess to figure out.

        I guess for the purposes of a comment on this OP, I'm making the point that the Reserve Bank could kill the overheated housing market overnight simply by raising interest rates, but that would do a lot of damage to the economy as a whole. While it might be good that your house can sell for a lot, it's really a bad sign that there's something badly wrong with the financial system not just in NZ but globally.

  8. Incognito 8
    • Requiring cash deposits for mortgages on investment properties, not just equity from other homes.

    Many years ago, I wrote to Graeme Wheeler, then-Governor of RBNZ, and suggested that as I thought it was an obvious ‘oversight’ of the LVR regime. Nice to see that the Greens seem to think alike.

    • RedLogix 8.1

      In that case all you've done is motivate me to sell the existing property to obtain the cash – and more than likely kick the tenants out along the way.

      • Incognito 8.1.1

        On which rung of the property ladder are you?

        • RedLogix

          Why do you care about that? The point is that your proposal would likely have unintended consequences.

          • Incognito

            I don’t care, why would I?

            My Q was to make you realise your PoV is determined by your personal situation. You’d sell, because you can, because you have something to sell that’s not your so-called family home. You’re way up the property ladder, well beyond the bottom rung. We all know this because you have commented about it; the Q was rhetorical and I’d hoped for some self-reflecting from you.

            If you genuinely believe that ring-fencing equity will have such bad unintended consequences then we’re done here and just have to agree to disagree.

            • RedLogix

              Two thoughts.

              One is that I do not actually have a family home. So-called or otherwise.

              Secondly as we've established, that for the most part property investors of all kinds are generally only making rational returns on their capital gains. I don't personally like this much – but that's beside the point.

              But as should be obvious, capital gain (unlike operating cash flow) is entirely meaningless unless you either sell or borrow against it. Well if you want to close the door on borrowing against it – what do you think is left?

              And why would you disagree with this?

              • Incognito

                One is that I do not actually have a family home. So-called or otherwise.

                That’s not a thought, strictly, but point taken; you don’t live in a home that you personally own but own one or more rental properties. Accurate enough?

                The interesting thing about equity mortgages is that it seems confined to property. There’s actually much more to be said about it. Shares can represent equity too but can you borrow against this? I don’t think so.

                Equity locked in, e.g. in KiwiSaver, is still useful and something to encourage because it builds a nest egg for later or for when you desperately need it (e.g. a life-threatening emergency) and most super schemes have such an option.

                The borrowing against equity in property to buy more property is a house of cards and needs to come down. Lock the equity, ring-fence it. Stop the greed cycle. The Greens understand this, it seems.

                You can release the equity by selling, which has been used as an argument against the Green's idea too. This is when and where a CGT/BLT comes in to fix that loophole.

                I was going to add something about Life Insurance in relation to mortgage but it is late and I had a long busy day 😉

    • mikesh 8.2

      I don't think one can purchase property with "equity". Sellers usually demand cold, hard cash. The buyer still has to come up with the cash that the bank, because of LVRs etc, is unable to lend. Of course someone who owns property has a better chance of obtaining a mortgage than someone who doesn't, because he can offer more by way of collateral. However that would be case with or without the Greens' suggestion, which seems pretty meaningless under the circumstances.

      I'm not surprised Graeme Wheeler didn't respond to your letter (assuming of course that that was the case).

      • Nic the NZer 8.2.1

        This could be achieved, you have some kind of regulation saying that further loans against a property must be funding activities relating to that property alone. Alternatively the LVR applies property by property should be similar.

  9. Incognito 9

    I posted the following comment this morning, but in OM 16/03/2021 and I believe it’s worth repeating under this Post here:

    Tighten or re-direct the money-tap.

    Change and tighten tax rules around investment in residential property.

    Introduce mandatory property managers/landlords who have to adhere to a professional code & standards and rules & regulations similar to real estate agents and financial advisors, for example. Weed out the cowboys and bad apples.

    Introduce local rates for empty homes and unoccupied land (land-banking) and make these progressive over time and dependent on zone (i.e. zones of high need for new dwellings). Don’t stomp on it, build on it and occupy it.

    Build more State Housing. Build, build, and build.

    Make Public Transport from suburbs in & out of CBD more attractive.

    Discourage street parking in city zones (like European cities).

    Encourage more high-rise apartment-style buildings in cities (like European cities).

    This is just a quick suck of the thumb. Naysayers will have a field day, as usual. They need to STFU; only constructive criticism is needed, the rest is just distractive and divertive noise.

  10. Incognito 10

    The proposal to get rid of the time limit for the bright line test is a simple way to impose a comprehensive capital gains tax exempting the family home. And all they are doing is altering an existing tax, one actually introduced by National.

    I wouldn’t call it “comprehensive”. It is technically relatively simple, it is politically low-risk, and that’s why I think they’ll go for it. However, I think it is simplistic (or optimistic?) to believe it will have much of an (desired) effect beyond the current 5-year limit.

    • mikesh 10.1

      The brightline tests, it seems to me, are merely CGTs which can be avoided if the seller can show he had a valid reason for selling. However, if a CGT cannot be justified I do not see how one can justify imposing brightline taxes. "That which we call a rose etc" as Shakespeare put it. We might just as well claim that a land tax is not a "new" tax, but an "old" tax that could be reintroduced.

      PS: I'm pretty sure a CGT cannot be justified.
      PPS: If we had a CGT in place, perhaps exceptions could be made in the event of “forced” sales.

      • Nic the NZer 10.1.1

        The point about the brightline tests seems to be NZ has an operational CGT, and so its hard to argue a CGT is going to be the effective policy to limit house prices.

        Other countries with CGTs have also gone through housing bubbles.

        Getting over the promise of this policy probably requires some acceptance Key era National already made this argument and were basically correct.

  11. Foreign Waka 11

    Agree with what you are saying. Not sure whether any of the politicians have the guts and stand up to vested interests though. It takes courage and certainly the right planners, engineers and considerable skills to map a plan.

    I wont be seeing any of it in my lifetime and will not hold my breath of any progress. Snout in trough, clamping to the desk is the major driver for most whether in government or private companies is my observation.

  12. Pat 12

    There is only one realistic solution to the housing crisis and many methods of achieving it…..a price drop.

    Unfortunately all solutions being considered / presented are done so with the express intention of NOT reducing the price of real estate for obvious reasons.

    Thats one hell of a circle to square.

    • RedLogix 12.1

      You really don't want a price drop – really not.

      At least three things happen – one is that [Edit] vendors stop selling for fear of locking in their loss, buyers stop buying for fear of losing their equity – and banks insist on even tougher LVR's to protect their loans, making it no easier for first home buyers.

      And those people forced to sell for reasons outside of their control, now suddenly have no deposit for their next home, so they have to go renting – pushing up demand and rents.

      Plus of course you've immediately pulled a whole bunch of liquidity out of the economy, which promptly goes down the toilet – wages stagnate or go down, and affordability does a gurgler too.

      All up you should be careful what you wish for.

      • Pat 12.1.1

        Thats all a bit incoherent but i assume what you mean is a price drop will have economic fall out….and that is the "obvious reason" I noted, however as stated that then means the housing crisis in NZ will not be solved….except when it crashes anyway.

        • RedLogix

          Thats all a bit incoherent

          Sorry I can't help you with that over the internet.

          • Pat

            Read 18 March 2021 at 12:34 pm and tell me that is coherent ….

            " one is that buyers stop selling"

            "wages stagnate or go down, and affordability does a gurgler too."

            dont think its an internet problem somehow

            • RedLogix

              Well why not point my obvious mistake out clearly instead of being snide about it?

              • Pat

                "Thats all a bit incoherent but i assume what you mean is a price drop will have economic fall out"

                Snide?….I wouldnt think so, but of course you could have looked at what you had written and clarified rather than…

                18 March 2021 at 1:22 pm

                but you chose not too.

      • mikesh 12.1.2

        “All up you should be careful what you wish for.”

        Whether we wish for it or not, the danger is that house will sooner or later drop of their own accord. A controlled drop now, with policies in place to mitigate the downsides, might well be a useful anticipatory measure.

      • Nic the NZer 12.1.3

        Its also going to be hard to achieve a price drop.

        Its been found that individual wage rates seldom fall during a recession (also called wages being downwardly rigid), which leads to the conclusion that lack of demand will lead to lower employment, not lower wages for the employed. In most cases where a company enforces wage cuts on its staff the social impact of that is catastrauphic on the business.

        As you identified the impacts on housing of a price fall will cut turnover before house prices. I would suggest this is because many housing market participants are not taking a calculated investment risk (where they wear whatever payoff happens across a trade) but approach a house with a different mindset entirely, including what they will sell for.

        The implication being that the govt would need to be really rough with the economy before achieving an actual price fall.

        • Pat

          If it is going to be hard to achieve a (housing) price drop then why are all parties so concerned about it?…and why do they consistently occur when value becomes unsupportable by underlying economic activity (as opposed to credit growth)?

          A price fall can lead to reduced turnover, however that is temporary until such time as creditors seek to reduce their losses as much as possible.

          The implication is not that the Government would need top be "really rough" (?) with the economy rather that the consequential debt deflation could begin a deflationary spiral….aka depression.

          And all of these risks remain the same as long as ever increasing credit (be it private or public) continues to support inflated asset prices…..the only difference being that the longer it is supported (inflated) the greater the losses when it crashes, as it will.

          • Castro

            For that to happen, the mass immigration Ponzi would also need to stop; when is that going to happen?

            • Pat

              Immigration wont prevent debt deflation…unless the overwhelming majority of immigrants arrive cash rich and willing to purchase the inflated assets and even should that occur it would only delay things.

              Most of the immigrants i know are very far removed from being in that position, though i must admit I know a couple who did so and bought farms a couple of decades ago…..not residential properties.

              • Pat

                And would add I agree that immigration is a problem in that we should not be increasing our population especially when we are incapable of providing sufficiently for those that are here already.

                • KJT

                  Not by 20% in 16 years, anyway.

                  The price, if NZ property is open to buyers from overseas, is almost infinitely elastic, upwards.

                  Even if only 3% of the market as is often claimed, without definitive evidence, there are many more millionaire or even Billionaire buyers wanting boltholes from the hells they are making in their own countries, than we have land for sale.

                  Selling land as a substitute for having an economy may not collapse, but we will end up like Coastal Spain.

                  • Pat

                    That is a problem but they dont have to be immigrants to do it…they can side step the rules through companies and trusts and youre correct they could potentially keep bidding up the price BUT even then they would only do so as long as they thought their investment was sound and the problem is the real economy (e,g, wages) isnt growing at a rate fast enough to support those values so even they can/will not keep buying forever.

                    And they are likely to be the first to quit the market once it turns compounding the problem by repatriating their capital.

                    • KJT

                      New Zealand wages are basically irrelevant to land prices, when they can depend on onselling to another wealthy offshore millionaire.

                      A lot do not intend to sell. Holding it for their own heirs.

                  • Pat

                    Disagree, NZ wages support land values and offshore interest is simply speculation.

                    Ultimately it is the local economy that provides the wherewithal for property values because it is the local economy that provides the security of that investment. even if every property was owned by offshore billionaires it is the locals who have to pay the rents and leases and if they cant afford to then what happens?…do they sit empty? some can but not a huge proportion and if the locals cannot be housed how does the economy function?….very poorly id suggest….and if the economy is not functioning why would foreign billionaires want to own assets here when they can buy assets in better performing economies?

                    We have increased the local economy's ability to service these ever increasing mortgages by ever reducing interest rates and we are now pretty much as low as they can go (a little lower potentially but bugger all) so where does our ability to service even greater property values come from?…increased government subsidies?….our public debt is already growing significantly…..increased wages?….theres little sign our SMEs can afford it and if they could it is inflationary which in turn will push up interest rates…..extended mortgage terms?….they are already at 30 years and with high rents its virtually impossible for locals to save a deposit in any case and the age at which the average person is able to buy their first home is getting later and later, will we have 40 year olds applying for 40 year mortgages?….Id suggest not.

                  • Incognito

                    Even if only 3% of the market as is often claimed, without definitive evidence …

                    If you believe that Stats NZ makes “claims” rather than collecting, analysing, interpreting, and reporting hard data then your comment is consistent with that belief.

                    • KJT

                      Statistics NZ don't"claim" anything of the sort.
                      For one, the percentage of definitely "Foreign buyers" has jumped all over the place. 11% down to 0.6% recently.

                      But. It is "Overseas buyers" /owners we are talking about here. Who are not constrained by purely local demand

                      Statistics NZ do not give statistics on the number of "Overseas buyers".

                      Who may or may not be a proportion of the New Zealand citizens 82% and residency holders, 7.2%, who do NOT live in New Zealand. Also corporate buyers, 10%, where residency of ownership is not given.

                      https://www.stats.govt.nz/news/drop-in-home-transfers-to-overseas-buyers "We do not currently have a register of property owned by overseas people. These property transfer statistics measure overseas involvement in property transfers in any given quarter, but not the total amount of property owned by overseas people".

                      Contrary to Pat's assertions, overseas buyers are not dependent on the local market, local wage rates or economic conditions. Judging by the number of empty houses speculators are not constrained by rental returns, either

                    • KJT

                      Stats NZ's own statement is not entirely correct. Because they do not give figures for the number of transfers/ownership to NZ citizens, or those entitled to residency who are temporarily or permanently living overseas.

                    • Pat

                      Do you seriously suggest that speculators are not reliant on the local market?…by definition it is the local market they are speculating on. Yes you can afford to have an empty investment property so long as there is a rising market because the capital gain is your return but once that capital gain ceases or reverses you are in loss making territory and you exit the market leaving the greater fools holding the losses….the speculators feed off the market, they dont create it, though they will certainly try to encourage it.

                      "Bubble" is short for speculative bubble

                    • KJT

                      That is sort of the point. Speculation in expectation of capital gains is the driver of rising house prices.

                      If demand has little limit. Is it a bubble?

                    • Pat


                      "If demand has little limit. Is it a bubble?"

                      We'll know for sure when it bursts, however the speculative demand will only remain as long as the underlying demand can continue to meet the increasing price and the underlying demand is governed by the local economy…it is the speculative demand that is effectively unlimited, not the underlying.

                    • KJT

                      The "burst" has been predicted from since before I was born.

                      In fact at one stage I thought that our politicians wouldn't be stupid enough to let it continue. Of course I was a bit naif about greed, when I was young.

                      The "crash" is not going to happen. If it even looks like it, we will suddenly find a need for another 90 thousand immigrants and a "freeing up" of overseas investment.

                      Not to mention that succesive Governments have pushed our economy into such a reliance on adding people and pushing up land prices, sinmce the actual productive rather than extractive economy was destroyed in the 80's and 90's that it may not be possible to unravel.

                    • mikesh

                      If demand has little limit. Is it a bubble?

                      It's bubble if people are investing simply because they see the market rising, without considering the "fundamentals".

                    • mikesh

                      The "crash" is not going to happen.

                      If we get some inflation back into the economy then interest rates will start to rise, and I think we will then see if there really is a bubble. If a lot of people are "swimming naked", as Warren Buffet puts it, then there will be panic as investors start to see prices falling, and we will see a stampede heading for the exit.

                      Will we get some inflation? I don't know. We probably need a jubilee: get rid of some debt – student loans, credit card debt, and perhaps a reduction in excessive mortgages.

              • KJT

                I know a lot who have bought expensive coastal properties. Though some are Aucklanders cashing in.

                Many suburban houses and small blocks being bought as rentals by Aucklanders children cashing in on their parents equity. And Auckland retirees who have sold in Auckland.

                All of which has pushed local prices up way beyond most locals. 25% up in two years. Spreading the Auckland disease.

                Should have joined Hone in closing the border at Kaiwaka?

  13. Arden has backed herself (and the Labour Party) into a corner. By flatly ruling out any capital gains tax (or land tax) for no reasons whatsoever she has blown her credibility apart.

    This government has let property owners/speculators rule the country.

    Which countries do not have a capital gains tax?

    That is where NZ should be keeping company?

    The labour party and the national party are twins with minor sibling rivalries.

    Climate change will inevitably bring pain and distress on top of covid 19 fallout. Accommodation hardship and homelessness is ,and will, increase while the fat cat national act party backers revel in other peoples misery.

    So much for wellness and caring.

    • mikesh 13.1

      Arden has backed herself (and the Labour Party) into a corner. By flatly ruling out any capital gains tax (or land tax) for no reasons whatsoever she has blown her credibility apart.

      The only tax which Ardern has ruled out permanently is the capital gains tax. Other taxes, she has ruled only for the duration of the current term.

      This government has let property owners/speculators rule the country.

      Not so. It is the banking sector that rules the country. It is them that the government should be targeting, not the speculators, who are merely taking advantage of a situation which is not of their making.

      Which countries do not have a capital gains tax?

      I don't know. But, frankly, who cares.

      That is where NZ should be keeping company?

      In other words we should just become one more lemming?

      • solkta 13.1.1

        Why is it the banks fault? They merely taking advantage of a situation which is not of their making.

        • KJT

          Directorships in banks for ex politicians, suggests that banks had more than a little influence on policy.

        • mikesh

          Creation of money from nothing is very much "of the banks' making".

          • solkta

            It is the government that makes the laws that enable the banks to do that. In Fraction Reserve Banking it is the State that says what fraction must be kept in reserve. The Government could set it at 100% if it wanted. Banks are just playing by the rules set by others just as the property investors are, but to a lesser extent as many MPs are also property investors.

            • mikesh

              I don't think they use a reserve ratio set by the finance minister these days. I think these days the Reserve Bank sets capital requirements, to be met by the banks, to ensure the safety of the banking system. I take the RB, which is independent, to be part of the banking sector.

              • Nic the NZer

                The RBNZ is part of the govt. Thats why the finance minister gets to set the RB governors policy objectives, appoint the governor and also why the RBNZ balance sheet is part of the govts balance sheet (in budget documents).

            • Nic the NZer

              As Mikesh highlighted, in New Zealand there is no particular reserve ratio specified. Also (contrary to popular belief) a reserve ratio does not constrain banks lending anyway. This is because the central bank always stands ready to lend the required reserves at its cash rate (e.g the OCR in NZ).

              In practice the aggregate banking system always determines how much credit its lending activities create. The govt can't restrict it without putting the payments system at risk of instability.

              Capital ratios also play a part but capital includes many financial assets which are not monies. A capital ratio is not another name for a reserve ratio.

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