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What about those neat capital gains on housing, eh?

Written By: - Date published: 12:48 pm, January 14th, 2022 - 184 comments
Categories: capitalism, Economy, housing, jacinda ardern, Metiria Turei - Tags:

RNZ on Jacinda Ardern December 2021, Ardern wants ‘runaway increases in house price growth’ to stop in 2022

Ardern has previously declined to advocate for a drop in prices, instead describing the government’s goal as “sustained moderation”.

Speaking to RNZ for an extended end-of-year interview, Ardern said she hoped 2022 would halt the recent “runaway increases in house price growth”.

Asked directly whether she wanted prices to come back, Ardern said: “Yes”.

“We need [the market] to stop heading in the direction it is,” she said. “Even if you saw [prices] come away, in many cases it would be bringing [them] back to levels that we were at only a year or two ago.”

Ardern stressed she did not want the market to collapse.

“The reason that we cannot afford to have a housing market collapse is because, of course, this is the most significant asset that most New Zealanders have.

RNZ report January 2022,

The national average house price rose nearly 30 percent last year. Figures from QV show the average house price went up 28.2 percent in 2021, with the new national average hitting $1,053,315.

Standardista arkie yesterday,

Once again we are reminded that the hopes of the PM mean nothing to a market off it’s leash, and that Labour can not and will not do anything that will actually cool this market:

The national average house price rose nearly 30 percent last year. Figures from QV show the average house price went up 28.2 percent in 2021, with the new national average hitting $1,053,315.

Christchurch saw the strongest growth. The city’s average price rose 40.2 percent. The average price is now $785,000. In January 2021 the average price was $560,000.

QV operations manager Paul McCorry said he did not expect prices to keep rising so much.

“It’s a huge, a huge increase for a year. Still a very good supply of homes in Christchurch, and probably in the wider Canterbury area, I don’t think it’s sustainable into 2022 at that level, so we would expect that to reduce.”

https://www.rnz.co.nz/news/business/459463/national-average-house-price-went-up-nearly-30-percent-in-2021

It seems Labour is happy to let the market correct itself, hopefully when they aren’t the Government. There’s been much discussion about the Greens and their failures or lack of successes; what logical reason is there to continue to vote for Labour when they consistently fail to achieve the meaningful material change they campaign on?

Note that the QV operations manager isn’t talking about a drop in property values, just a slowing of the increase. Which is  until recently what Ardern has been saying she wants. Let that sink in – Labour have deliberately prioritised protecting the assets of the land owning class over the ability of low income to afford rent or a mortgage.

Metiria Turei, July 2016, in Stuff,

On Wednesday Turei, the Greens co-leader, put her neck out politically calling for house prices to be slashed, particularly in Auckland, where the average is knocking on $1 million.

She’s considering policy that house prices drop to about three to four times the median household income.

In today’s terms that would be roughly an $80,000 income and houses valued at about $300-$400,000.

Her party’s approach is not dissimilar from former Reserve Bank chief economist Arthur Grimes and former National and ACT leader Don Brash, who are calling for a 40 per cent drop and as much as a 60 per cent fall respectively.

Turei says she’s doing work around what a policy would look like but she’s taking a lead from initiatives, such as Auckland Council chief economist Chris Parker’s report picked up by the council to aim for house prices five times the household income by 2030.

“We are saying it like it is. Most people believe house prices are far too high, most people believe house prices need to come down.”

Turei was very clear that this wouldn’t and shouldn’t be a crash. She says timing is critical, to have a long term plan. And that it’s important to not get alarmist about this. People shouldn’t get into trouble with their mortgages, hence the necessity of a plan. RNZ,

“The only way to prevent a bust, and to protect families in the short and long term is to lay out a comprehensive plan, which means using every comprehensive tool that we’ve got so that we can slowly bring down house prices so that they’re reasonable.”

Ms Turei said the government was not admitting there was a problem with housing prices, let alone putting in place a plan to deal with it to protect families.

(and that, btw, is how the Greens used to use their voice).

Interview with Guyon Espiner on RNZ is here. Housing price drop starts at 3m, including the ‘crash’ issue.

Labour point blank rejected the idea of a drop in housing values, Andrew Little’s response at the time was to say Labour’s plan included building more houses, ending overseas speculation, and raising wages.

Here we are nearly a half a decade later, and the cost of housing situation is worse. We’ve had some reprieve with the housing crisis due to the international border being closed and the pressures of immigration and mass tourism having lifted.

While wages have risen, benefits haven’t in any meaningful sense. Accommodation supplement is still a mess. There’s been some good intial work done on tenancy law reform, but the gap between rentals and what low income people can afford is a still a chasm.

So please spare me a rehash of ‘Labour are building more houses’. Yes they are. Building houses for the private market fuels the market. It won’t help low income people and renters. It will make things worse for them.

Labour are doing the things they said they would. It’s not working.

The key questions here are:

  • will Labour voters who own property be willing to give up some of their capital gains in order to make housing affordable again in New Zealand?
  • will they vote Green in order to make that happen?
  • failing that, what pressure can be brought to bear on Labour to take action?

Beyond that, the core issue here is one of values. Do we want housing to primarily be a financial investment or to be about homes? Do we want everyone to be have a good home that they can afford, or are we ok with some people doing without while others make shitloads of cash?

Green Party housing policy core principle (link below),

Housing is a social good and a basic right; all people should have access to secure, affordable, good quality housing

Labour don’t seem to have a set of principles, but this is from their current housing policy,

Here are some of the ways Labour is making sure everyone has a warm, dry place to call home:

The first item is about paving the way to home ownership. The second is about building more houses for the private market faster. Only then does Labour talk about public housing and renters. I have no doubt that Labour MPs want good housing for all people, but they won’t prioritise that in their policy or actions.

A more recent document makes it clear Labour are focused on:

  • getting first home buyers into the market
  • getting more investment in the house building market
  • removing barriers to that

Build Moar Houses Investments.

So I guess it is a statement of values after all.

We should also, as a matter of urgency, be designing housing policy in the context of climate change and the ecological crises. Mitigation (reducing GHG emissions associated with houses from cradle to grave) and adaptation (regulate efficiency and construction with probably climate outcomes of the next 200 years).

Green Party Housing and Sustainable Development policy (PDF)

Front page photo via the Guardian July 2021 House with no toilet sells for $2m as New Zealand property market soars

184 comments on “What about those neat capital gains on housing, eh? ”

    • Nic the NZer 1.1

      Something weird going on with their graphs there. The 2021 values are all above 5% but contain negative quarters in the tabulated data.

      • Puckish Rogue 1.1.1

        Makes you wonder about the veracity of information we're fed…

        • Nic the NZer 1.1.1.1

          And just who fed you that information?

          • Puckish Rogue 1.1.1.1.1

            To be fair I just read this:

            'We use the The Real Estate Institute of New Zealand (REINZ) housing statistics. The Reserve Bank of New Zealand (RBNZ) also publishes Quotable Value Limited’s house price time-series of all residential properties in New Zealand starting in Q4 1989. Data before that calculated by RBNZ stretch back to Q4 1979.'

            and went off that but if you've got more accurate graphs I'd be interested in seeing them

            • Nic the NZer 1.1.1.1.1.1

              I don't, so I don't know if one of the graph or table is correct (one of them seems wrong).

              It wouldn't be hard to deflate the RBNZ house price data by inflation rates however.

  1. Sanctuary 2

    Yet another post outlining and whining about the problem, but being a bit thin on solutions and lacking a realistic discussion of the political context – namely, around two thirds of New Zealanders still own their own home, they tend to vote a lot more than non home owners, and they don't like politicians talking about tanking the value of both their main asset and their retirement fund.

    In that sense, it is dumb asking if people who are not rich and have worked hard to save and buy a home are prepared to put their financial security at risk to help out others. The answer is no, of course not. Altruism may extend to being the bank of Mum and Dad, but not risking living in poverty to help out people they don't know.

    No major political party that wants to stay a major political party is going to do anything that will potentially alienate 70% of voters.

    The Greens are a marginal party for marginal people, and their housing policy reflects their determination to stay that way. It doesn't talk to "middle New Zealand" it just waffles on about the Treaty, sustainability, and has a bit about community and social housing and suggests a CGT, a pointless suggestion since it is rejected by all other parties.

    That is the central political problem. And if you see the political problem as the first port of call for a solution, then I'd like to hear how anyone plans to solve that.

    • weka 2.1

      yet another comment outlining and whining about how others see the problem, but being a bit thin on solutions. I can write a post about solutions, but would expect to get the same response from you. Mostly it's a lack of imagination. Turei was talking to the political classes, saying we have to develop a plan. Labour said nope, we're doing this instead and everyone knows it's not working. It's NZ's Emperor's New Clothes.

      Change always comes from the margins. The centre is incapable of making the kinds of changes needed. Nowhere it this more easily demonstrated than NZ's housing crisis (and climate of course).

      We don't need working class home owners to vote Green. We need left wing liberal voters who say they want the housing crisis and poverty solved which is why they've been voting Ardern to stop and think. Time for those people to front up and be honest. If they truly want something to change they either need to vote Green or find another way to hold Labour to account.

      Your argument is predicated on the idea that change only happens by the majority party and they're not going to rock the boat. That's old FPP mentality. In an MMP world, smaller parties can effect change by raising the issues that larger parties' can't. Turei was really just saying, let's have this discussion.

      The irony of your comment about the waffling Greens is that Turei was looking out for low income home owners. And she was talking about a plan that would indeed protect the people you are talking about. Maybe read the post next time.

    • arkie 2.2

      The Greens have been campaigned on a CGT that excluded the family home (or their main asset if you prefer), Ardern ruled it out. The Greens continue to offer potential solutions from the margins too:

      The Greens want to make it harder for property investors to get a mortgage, and to make them pay a capital gains tax whenever they sell a house.

      The party released a four-point plan that it says will help stop an accelerating housing crisis, which continues to lock ordinary New Zealanders out of the market.

      It comes as Finance Minister Grant Robertson is expected to announce policies to address housing supply side issues next week.

      Greens Finance spokesperson Julie Anne Genter said her party's plan was calling for bold, transformative measures, including removing tax incentives for investors by ditching the five-year cap for the bright line test.

      "Anyone selling a residential investment property that is not their primary home should have to pay tax on profits.

      "Any cap extension, to 10 or 15 years for example, just kicks the can down the road a few years, while property investors will hold on to their properties until the day after the bright line test is over," she said.

      The Greens also want to regulate investors' access to loans by ending interest-only mortgages, requiring cash deposits rather than just equity from other homes, and putting restrictions on debt-to-income ratios – something Reserve Bank Governor Adrian Orr has asked the government for.

      https://www.rnz.co.nz/news/political/438535/greens-urge-capital-gains-tax-in-plan-to-address-housing-crisis

      Solutions are hard, they takes guts, and they are riskier than hope. Which is all Ardern has offered on this issue.

  2. Tiger Mountain 3

    Well put Weka, for hundreds of thousands of New Zealanders, Labour allowing and seemingly promoting housing as a loot generator rather than accomodation, will be the defining failure of this once in a generation MMP majority Govt. What happened? some of the Labour faithful will say–well this happened…generation rent, generation student loan, generation living in sheds, garages, and overpriced dumps…

    A state house/apartment mega build, along with tiny houses for homeless and emergency houses in every NZ region and sizeable town, needs to happen with active funding and implementation via a rejuvenated “Ministry of Works”. Import Euro and Asian flatpacks if the local “property developer” bludgers will not co-operate on a grand social project.

    It is time for Labour Ministers to be followed by protest where ever they appear, and time to start occupying empty residential and commercial properties on a politically organised basis till the point lodges in the neo liberal, TINA, Blairite consciousness of the majority of the Labour Caucus.

    No CGT? change it, implement in next budget. Rent Control and Rent Freeze now. Train thousands and build house after house until every speculator, landlord and grasper have had enough.

  3. alwyn 4

    I would be possible for the Government to reduce the rate of growth of house prices by doing one simple thing.

    Make more land available. It won't solve everything but if there was no increase in the land prices there would be little increase in the value, and the price, of existing homes.

    I have chosen one property in Wellington to illustrate this. The rating value of a property in Wellington is a reasonable estimate of the selling value I gather.

    Between September 2018 and September 2021 the land value rose from $425k to $980k. The Capital value went from $870k to $1,460k. Hence the value of improvements (that is the house) went from $445k to $480k. That hardly changed. The increase was all in the land.

    The Government could, if they wanted to, make much more land available. Certainly it will mostly be on the outskirts of the city but so what? Buy the land in large quantities and do the subdivision. Then sell it, one section per buyer, and require them to build within a couple of years. Do it on a massive scale. A really massive scale so that there is no gain for people trying to land bank the sections.

    This is the only way I can see to bring the prices down. Sure you will have to open up the borders and let builders enter the country. Surely they are vastly more use the bloody DJ's?

    Note. This is not within my specialist field of expertise in Economics but I can't see anything in the argument that is likely to be way out. Just do it.

    By the way. A CGT, particularly if it excluded the main family home will do absolutely nothing to solve the problem. It will only impoverish the elderly wanting to live out their life in their own home.

    • weka 4.1

      Freeing up land but only if the houses are built outside of the housing market and stay that way.

      If you allow private development, it will just fuel price increases. This is exactly what is happening currently. At some point that will stop when there are more houses than people needing them, but the damage is done in the meantime. I can't see how private housing will ever lower house prices, because house owning is now primarily a financial investment.

      The other issue with freeing up land is that we should be viewing land through and ecological and climate lens first and foremost and then designing human habitation within that. Stop building on good agricultural land on the outskirts of cities, and stop chopping down trees ffs.

      • alwyn 4.1.1

        I'm not sure what you mean by the first sentence. People don't stay in their first house forever. If they need to move, for a new job say, they have to be allowed to sell a nd buy an alternative place.

        For most people house owning is not a financial investment. It is a place to live in. They may think they are better off because their house value has risen but very few see themselves as being permanently better off. It is still the same house after all.

        As far as your last paragraph goes we are going to have to agree to disagree. If you want prices to go down you are simply going to have to put building more houses at the heart of the solution. Preserving large areas in trees because they are "nice" is going to have to go. If we want lower prices we are simply going to have to provide lots of land for housing. If that means chopping down trees so be it.

        • weka 4.1.1.1

          'nice' is microclimate creation when the weather is in the high thirties. It's going to be essential over the rest of the century. You can't easily replace a mature tree because it takes decades to get to that size.

          We don't have to build on fertile land, we don't have to chop down trees. We can build more houses without doing that. We apparently can't Build Moar Houses without doing that.

      • mikesh 4.1.2

        If land is "freed up" the government, I think, should retain the land and just sell the abode that sits on the land. They could charge a modest rent for the land while the buyer's outlay for the property is greatly reduced.

        • alwyn 4.1.2.1

          Then you are buying a leasehold property and you have no idea or control over what the rental payment may go up to when it comes up for renewal. Plus the Banks are loathe to lend on these properties.

          I, personally, wouldn't ever consider such an option. Note. I am not giving advice to anyone. This is just my personal opinion.

          Here is an article on the subject. It is a bit old but the principles still apply.

          https://www.westpac.co.nz/rednews/what-will-happen-to-leasehold-property-in-new-zealand/

          • weka 4.1.2.1.1

            Then you are buying a leasehold property and you have no idea or control over what the rental payment may go up to when it comes up for renewal.

            You mean like rental properties now? That would be the private market btw. No reason why the government couldn't set stable rents. Caps even.

            • alwyn 4.1.2.1.1.1

              It is a great deal easier to shift to another rental property that it is to pick up your whole house and shift it to another piece of land. Even Clarke Gayford found that that was not easy.

              Renegotiating the lease is, or so I have been told, extremely stressful and the party with the deepest pockets wins. I've never been involved but I know lawyers who have. I wouldn't have a bar of it.

              A fair bit of leasehold land is Maori owned I believe. You might find yourself up in front of the Waitangi tribunal then if you don't go along with the increase asked.

              • mikesh

                If a lot of land was publicly owned and rented out so the practice was considered reasonably normal I think would-be owners would accept such arrangements.

                If some scheme could be devised to enable the crown to nationalize all of NZ’s land then I think this could be beneficial.

                • Blazer

                  'If some scheme could be devised to enable the crown to nationalize all of NZ’s land then I think this could be beneficial.'

                  I'd couldn't even imagine what the odds would be for this to…happen!

                  • Unicus

                    Another “out there” idea I’ve heard discussed is Property Investment Zoning

                    Taking Auckland as an example an outer zone (including existing and greenfield property) reserved for single and first home owners .

                    A middle zone allowing some multiple home ownership and speculative development .Without specific qualification requirements

                    An inner zone ( The central isthmus) where an open uncontrolled market operates

                    Value movement in all three zones reliant on demand

                    • Blazer

                      I suspect those zones could be 'gamed' quite easily.

                      Simplicity…stamp duties,CGT,levy empty homes,soft loans for first home buyers.

                    • Unicus []

                      Yes agreed in this form gaming the zones would be easy

                      However this is very simplistic modelling of.what could be a workable option

      • Hunter Thompson II 4.1.3

        Even if Labour built enough houses, what guarantee do we have that they will be of sufficient quality and won't leak or fall down within 3 years?

        Building standards seem to be pretty low these days, as anyone whose house was rebuilt or repaired after the Christchurch earthquakes will tell you.

        Final para makes a good point. Good planning and design is essential, not kneejerk political reactions to a crisis that was ignored for years.

      • Blazer 4.1.4

        'At some point that will stop when there are more houses than people needing them, '

        There already are!

        Jacinda Ardern not convinced by 'ghost home' concerns despite data showing 40,000 vacant in Auckland | Newshub

        • weka 4.1.4.1

          The housing shortage will resume if Labour resume mass tourism and immigration.

          • Blazer 4.1.4.1.1

            Do you think with eye watering house prices that emigration by the young and skilled may just ramp up to negate …that?

          • Jenny how to get there 4.1.4.1.2

            Blazer

            15 January 2022 at 8:45 am

            …..there are more houses than people needing them, '

            There already are!

            Jacinda Ardern not convinced by 'ghost home' concerns despite data showing 40,000 vacant in Auckland | Newshub

            weka

            15 January 2022 at 12:31 pm

            The housing shortage will resume if Labour resume mass tourism and immigration.

            Mass tourism and immigration have nothing to do with it.
            The Ghost house problem existed long before mass tourism and immigration had a crimp put on them by the pandemic.

            The social damage wrought by homes as commoditites

            By: ANTHONY R0BINS – Date published: March 4th, 2017

            This report makes for depressing reading:

            In June 2015 this “ONE News investigation” caused quite a stir:

            ‘Ghost houses’ hit Auckland renting market

            Ghost houses aren’t haunted, but could prove to be the stuff of nightmares for would-be renters in Auckland’s overheating housing market.

            A ONE News investigation has revealed houses across our largest city are being bought and deliberately left empty by investors who refuse to rent them out, instead looking to sell them for huge profits without the hassle of finding tenants in the interim.

            Building and Housing Minister Nick Smith doesn’t think the number of ghost houses is rising, and there is no way of knowing how many of Auckland’s 22,000 unoccupied properties are being deliberately left empty [my emphasis].

            However census figures show the percentage of unoccupied dwellings in some desirable Auckland suburbs has surged in the past 10 years, with more than one in 10 Takapuna homes empty. …

            In 2016::

            Rise of the ghost homes – More than 33,000 Auckland dwellings officially classified empty

            More than 33,000 Auckland dwellings are officially classified empty as the city grapples with a crisis of affordable housing and homelessness.

            Auckland’s 6.6 per cent vacancy rate is higher than either Sydney (5.2 per cent) or Melbourne (4.8 per cent), where there has been an uproar over “ghost houses” deliberately left empty by speculators trading on a soaring market. …

            The social damage wrought by homes as commoditites

            • weka 4.1.4.1.2.1

              I wasn't talking about ghost houses, I was talking about availability of housing. Tourism and immigration have a lot to do with it.

              eg in tourist towns, people who own housing that they don't live in, shift it out of longer term rentals and into air BnB.

              Many tourism jobs are done by people on work or holiday visas, those people need accommodation.

              The Key government actively sought to bring in a high number of additional residents to NZ while not creating the infrastructure necessary to house them.

              This is not rocket science. If there are 40,000 empty houses in Auckland, and you free those up for housing, once they are full and if we go back to mass tourism and immigration, it's pretty clear that we will replicate the housing shortage.

              I've long said there are plenty of houses in NZ. The problem isn't that at the abstract level, it's how to provide housing to people where and when they need and want it.

    • peter sim 4.2

      Impoverish seems a little of an overstatement.

      • alwyn 4.2.1

        Yes, for a genuine CGT that was only charged when it was realised it probably would be a bit overstated. It would only bite very deep if you needed the money from selling you home to put into a retirement Unit. Then it would be very painful.

        On the other hand if it was charged on un-realised gains, or like a wealth tax, it would be very painful and impoverish would be a fair description of the result.

  4. arkie 5

    Tautoko weka.

    There are other options to supply-side ‘solutions’ that rely on private developers to build the right kind of properties, perhaps looking at other models of ownership and development like this in Austria:

    Stefanie and Gabe got married in 2018, and their housing needs have changed as they plan for a family. For NZ$58,000, they have just purchased the rights to a generous 79 m2 2-bedroom apartment under construction nearby.

    This remarkable value is achievable because they are purchasing shares in a large housing cooperative. Their shares entitle them to secure tenure over their own home for their lifetime, with rights that allow their shares to be inherited by their family who could also live in it if they choose.

    Stefanie and Gabe will also pay a monthly below-market rent of around NZ$1,200 that will remain affordable because it is inflation indexed. It includes common area maintenance costs and is approximately two-thirds of Vienna’s market rents. Their apartment is “very green” and has a balcony, access to a park and access to common amenities like a roof garden, children’s playroom and playground, party room and bike room. Such is the popularity of cooperative housing, there was a four-year waiting list for the apartment.

    What’s different to an equivalent owned apartment in Aotearoa New Zealand with an expensive deposit and mortgage is that Stefanie and Gabe are both shareholder owners and tenants. Their cooperative shares fund part of a loan contributing to the building costs.

    If they decide to live elsewhere, the shares will be refunded less 1 percent per year they have lived in the building so that the initial costs for new occupants will remain at a similar level.

    The ongoing affordable rental will continue funding a fair long-term return to the cooperative. The city of Vienna is not the property owner, but provides funding security to enable the project to be realised.

    The primary value of the apartment to Stefanie and Gabe is the long-term housing security that comes from ongoing affordable rights to live in their shared apartment as opposed to its value as a financial investment vehicle.

    https://www.newsroom.co.nz/as-far-from-the-nz-housing-market-you-can-get

    • weka 5.1

      I don't know why this doesn't get more interest in NZ. Cultural maybe? I know the Greens have been pushing for alternative models, and Māori too. I guess it will grow in time, but Labour really are a massive problem here.

      • arkie 5.1.1

        Even in the Austrian example Government support is needed to create these developments and co-ops. As has been endlessly noted, a number of successive governments have contributed to this mess of issues that culminates in our housing crisis, but Labour have campaigned, and won, offering a 'solution' that has patently not worked, and they've shown no interest in trying to undermine our cultural (and financial) relationship of housing as an asset.

        • weka 5.1.1.1

          quite the opposite in fact. It's very clear from their website that they view home ownership as investment is the core of it.

          • arkie 5.1.1.1.1

            This is what galls me most, commodification-as-a-solution is definitional neo-liberalism, but Jacinda Ardern:

            “I’ve always described myself as a democratic socialist” but that “I have never found those terms particularly useful in New Zealand because we do not tend to talk in those terms here.”

            “Here it is more common to say ‘progressive,’ or ‘member of the Labour Party,’” she explained. “People tend to know what that means.”

            https://jacobinmag.com/2021/05/new-zealand-labour-party-socialists-jacinda-ardern
            (The Standard even get's a mention in this article from last year)

            • miravox 5.1.1.1.1.1

              Interesting read.

              She's sort of right that democratic socialist is not well-understood here. Democratic socialist and Social democracy have different underlying principles.

              " social democracy was defined as a policy regime advocating reformation of capitalism to align it with the ethical ideals of social justice."

              whereas

              In the 1990s New Labour, led by Tony Blair, affirmed a formal commitment to democratic socialism, "describing it as a modernized form of social democracy; however, it no longer commits the party to public ownership of industry and in its place advocates "the enterprise of the market and the rigour of competition" along with "high quality public services either owned by the public or accountable to them".

              The Austrian SPO is social democrat & our Labour party (assumed by Ardern’s comment) is leaning to democratic socialism. In other words she's a Blarite. Meanwhile, Austria, and more specifically the State of Vienna, has safe and affordable housing (still majority rented) for its people rather than as a retirement fund for landlords.

              https://www.newstatesman.com/spotlight/2019/09/housing-basic-human-right-vienna-model-social-housing

              How it works (YouTube 25:45 mins) High quality, affordable city housing is combined with a high proportion of the city area in green space and affordable and frequent public transport network (365 euro/year for residents – often subsidised by employers – when we left our home there in 2018).

  5. Brendan Waugh 6

    An observation.

    I was in Ireland as I watched their housing crisis destroy their banks. The large pot of stamp duty resulted in the government accounts becoming distorted by all this extra money.

    When the party stopped in 2008, all the money Stamp duty generated needed to be replaced. Taxes had to go up – in the middle of a recession.

    If you bring in capital gains tax, then be aware that this money is not a conistant and long term funding stream. Be very careful. Problem is that National and Labour will assume that the party will never end…….

    • Nic the NZer 6.1

      This is more of an issue for Ireland than NZ. Ireland depends on the ECB as its central bank. Around 2010 Irelands interest rates went through the roof and they needed a bailout which came with conditions on how to run their economy. Actually the ECB has been regularly facilitating Eurozone deficits since soon after then till today by buying up debt to keep interest rates down. During the start of the Eurozone debt crisis however the ECB was letting govt interest rates go sky high, and negotiating economic policy when countries came forward for a bail out.

      In NZ however parliament sits above the RBNZ legally. If they want to spend (as during 2020) they can just instruct the RBNZ to facilitate that spending.

    • Blazer 6.2

      If money from stamp duties was quarantined for public housing programmes that be a net benefit.

      The Greens need to say they will restore the Kiwi Dream of home ownership.

      It can be done by lunchtime.

      -Tweaking Singapores stamp duties recently increased would be one step.

      -levy on homes ,empty for more than 6 months as per Vancouver.

      -soft loans for first home buyers.

      Gov’t unveils 3 new property cooling measures (msn.com)

  6. Blazer 7

    'The reason that we cannot afford to have a housing market collapse is because, of course, this is the most significant asset that most New Zealanders have.'

    If most NZ'ers actually utilised this asset as a long term home for living in,a decline in house prices would have no effect over the 30 yr ave mortgage term(provided they can pay the mortgage).

    The recent Valocity data showed just how few so called 'mom and dad' investors there really are.

    There are solutions,but the Govt is not interested.

    NZ has the highest house prices in the world.

    NZ has the highest rents in the world.

    A 30% annual increase in property prices is beyond a…joke!

    • weka 7.1

      yep, it ties into how mobile NZers are. Almost like the housing crisis sits within a broader economic and social context 😉 This is why starting with values matters. Maybe people would move around less if they had good community and stable jobs.

      • Blazer 7.1.1

        I recall the average time NZ'ers stayed in their home was at least 7 years.

        Buying and selling in the same market is a fairly neutral exercise..

        Who benefits from rampant housing prices=Banks,RE professionals and insurers ,Investors .-how many votes there?

        A home to live in and raise a family gives people a real stake in society and leads to good communities.

        There is truth in the argument that investing in property is just so rational its a govt guaranteed winner.

  7. Foreign waka 8

    Perhaps three things need to be pointed out to that dance of envy everywhere.

    Firstly, homeowners have paid for their roof over their head by working hard, sometimes more than one job. For those who find that these homeowners have got something they want but are not willing to work for – get a grip and get you back side into gear

    Secondly, governments and even the reserve bank has allowed this situation to go completely out of hand by throwing money around like candy. We have local councils who have syphoned some 70% of the money from the replacement fund for infrastructure to increase their wages and run their pet projects. Hell, why do I need a rainbow walkway if it is doused in shit.

    Thirdly, banks are businesses that make a profit. If you have interest rates at that giveaway level than it stands to reason that they only leverage is housing stock has to increase in value otherwise inflation will bring the return into negative territory. I think this is just about on the cusp now. To me the way homes are being traded at ever increasing value with more and more people joining the ranks of buying….its like a pyramid scheme.

    The only solution is to firstly build a proper infrastructure and repair all pipes first. The laying of new pipes needs to be financed by those who develop housing. Engineers (pls pls educated ones with experience) need to assess the egress further down the line of any storm and sewage pipes capacity so that they unwashed don't end up swimming in shit. Only when this has been done properly can plans for social housing go ahead. I can't for the life of it understand why large business blocks are build in central areas, close to supermarkets, council, swimming pools, libraries etc. Who ever has designed and planned the cities (the pattern is the same everywhere) needs to be made to walk from the furthest reach in a suburb to the supermarket close to the town center at least once a week for a year.

    • McFlock 8.1

      As for 1, I'd have needed to boost my retirement savings by 30% last year just to not be able to afford a home deposit to the same degree that I couldn't afford to put a deposit on one then. I'd also have had to increase my income by 30% to not be able to afford to service the payments on that home to the same level.

      Lots of people who can't afford homes work hard. If it were just me, fair enough. But we have a real problem in this country, and it's not the laziness of renters.

      • Foreign waka 8.1.1

        McFlock, my comment was not aimed at those who try to gain traction but rather all those who seem to believe that some ones hard earned possessions should be theirs. Envy is another issue that seem to be encouraged.

        I am acutely aware that people in retirement often go by by the smell of an oily rag. And yet it seems that group gets constantly the finger pointed at.
        Hence my comment.

        The point 2 and 3 has shown where the issue is and I made a comment as to how logistically and reasonable this could be approached if we would have people in charge who actually worth the money they get paid. Sorry, but this is my true opinion. If I would work like some of these extremely well paid to the grave people work I would get sacked. Simple as that.

        • weka 8.1.1.1

          all those who seem to believe that some ones hard earned possessions should be theirs

          what would be some examples of that? It's not something I come across.

        • McFlock 8.1.1.2

          Or is it the politics of jealousy, worried that something being affordable for someone else means my capital value might be a bit less?

          The "just do hard work" thing pisses me off. some of the hardest working people I know get paid fuckall. Capitalist organisations don't reward effort, they reward the value one brings to the company vs other people, and only if one might stop delivering it.

          But cheap credit and few restrictions on overseas money have been a way for governments to pay off the propertied class. Many MPs are part of it anyway, which is easy when you earn a minimum deposit in a year.

          I thought the government were off to a good start in 2018, not so much kiwibuild but the prefab plant to lower building costs. Other ways to make housing more affordable without necessarily pissing off the propertied class would be to directly build rent-to-own developments, or simply massively increase state housing purchases and sell directly to the tenants, no bank needed.

          But the govt is a little too invested in the public-private partnership model to just take the bull by the horns.

  8. Ad 9

    No, you don't have a right to own a house. Or even a right to a mortgage.

    No, the Greens don't have policy on it. But they happily cooperate with every housing announcement that this Labour Government had initiated, further last 5 years. Check Scoop for all the joint and parallel media releases .

    No, Labour are not able to control real estate capitalism entirely. HNZ is about 10% of it.

    Yes, I am quite happy to rearrange my affairs for a 5 and 10 year investment horizon. As are all my relatives.

    Yes, Ardern was weak at the time folding on CGT. – but right in hindsight since property and agribusiness are the only two parts of the private sector keeping this country solvent.

    Yes the Greens should put up an election policy to deliberately tank house prices by 30%. Please, go do it.

    • weka 9.1

      Is that an admission that Labour can't solve the housing crisis? That's some progress I guess.

      • arkie 9.1.1

        It's at least an admission that an increasing number of people aren't worthy of having assets.

      • Tiger Mountain 9.1.2

        “Won’t” solve, is the reality so far Weka.

        Embedded neo liberal thought and legislation for nearly 40 years have helped create new generations with no direct memory of anything different from hegemonic Chicago School dog eat dog economics.

        This is evidenced in a minor way by some of the selfish ones commenting in this post, who are blaming non home owners for macro economic factors well beyond their immediate control.

        The numbers will favour boomer successor voters from 2023–hopefully new activism will take hold and give the ladder pullers a knee in the nuts.

    • McFlock 9.2

      And if nobody has a right to own their own home, nobody has a right to own an extra one. Is it about rights, though?

      Or is it that somehow we've managed to push out of the reach of young adults today that which their grandparents could routinely achieve?

      Is our society better off that home ownership is dwindling? Or is it generational ladder-kicking?

      • alwyn 9.2.1

        You appear to be saying that you have never owned a house. Why not?

        • McFlock 9.2.1.1

          Ever hear of a concept called "money"?

          If it were just me, your question might have a point.

          Last census we had the lowest home ownership rates since the 1950s.

          It's not about me. There's a decades-long systemic problem that is getting worse and worse. But sure. Try making it about one person in the entire country.

          • alwyn 9.2.1.1.1

            I think that a major reason for the decline in house ownership is the change in marriage and family creation patterns.

            In the last 50 years the change in first marriage has been.

            "In 2020, the median age at first marriage or civil union was 29.5 years for women and 30.6 years for men … … . In 1971, when marriage rates peaked, the median age at first marriage was 20.8 years for women and 23.0 years for men."

            https://www.stats.govt.nz/information-releases/marriages-civil-unions-and-divorces-year-ended-december-2020

            I can't readily find figures for the age of first birth for the same time period but it has apparently increased by about 6 years since 1980.

            https://www.statista.com/statistics/1081327/new-zealand-median-age-of-mothers-at-childbirth/

            I suspect that there are far more childless couples that there were when I was young but I don’t have any figures to prove that.

            When I got married, way back in 1968, we married young, saved furiously to buy a basic house, and then within 2 or 3 years after marriage started our families. It is much later for those stages today and I think that much longer period before marrying and having children is what is reflected in house ownership.

            • Blazer 9.2.1.1.1.1

              ' think that a major reason for the decline in house ownership is the change in marriage and family creation patterns'

              alwyn,I say alwyn,that would have to be the most delusional theory ever offered up to explain the decline in home ownership…stick to…cricket.

              • alwyn

                You never do have anything sensible to say do you?

                Just abuse someone rather than contribute anything to the discussion is your only activity. Why do you bother? Just give up and let the adults talk.

                • McFlock

                  I mean, it's actually one of the times I agree with Blazer's general sentiment, if not the extent (or grammatical peccadillos).

                  Ignoring housing affordability to concentrate on marriage etc is a bit of a stretch.

            • McFlock 9.2.1.1.1.2

              Cool story.

              Home ownership peaked in the 1991 census, so doesn't really line up with your marriage hypothesis. Could be a lag, maybe.

              • alwyn

                I assume that you were looking at this material.

                https://www.stats.govt.nz/news/homeownership-rate-lowest-in-almost-70-years

                I agree that the peak was 73.8% in 1991 but I think that there is no difference from the 73.7% of 1986..

                The numbers do lend a bit of support to my theory. There was a slight dip in 1971, which would tie in with the very low age of marriage where you have a new household who certainly couldn't buy a house immediately.

                The numbers by age group would fit in with my theory although they only start with 1986. The younger groups, who I suggest showed a marked decline in marriage or at least household formation certainly dropped faster in home ownership rates than did the older, more likely to be married contingent.

                It doesn't mean they weren't starting families of course. In my day though you were far more likely to be married if you had children, even if the reason for the marriage was the pregnancy.

                My whole proposal could be completely the wrong way round of course. People could be postponing marriage, and starting families because they can't afford a house rather than not buying a house because with no family and no children they don't see the need to own a house.

                I don't see, by the way, that houses are actually more expensive to buy today than they were 50 years ago. The price is much higher, as a multiple of incomes but interest rates are vastly lower. I can personally remember paying 13% interest rates on a first mortgage and I think they were up to 20% in the mid 1980s. A mortgage for two thirds of the property value was also about the maximum you could get.

                https://teara.govt.nz/en/graph/23100/interest-rates-1966-2008

                However it still remains that the major problem today is the ridiculous price of land. When a 600 square metre section at Snell's Beach has an estimated price of $1.4 million I certainly wouldn't be in the market.

                https://www.realestate.co.nz/42084393/residential/sale/11-awatere-place-snells-beach

                No. Let the Government open up large blocks of land on the fringes of Auckland and flood the market with developed sections and the market might fall. Anything else is doomed to fail.

                • Blazer

                  'I don't see, by the way, that houses are actually more expensive to buy today than they were 50 years ago. The price is much higher, as a multiple of incomes but interest rates are vastly lower.'

                  alwyn,I say alwyn the income multiple demands interest rates be low.

                  The ponzi could not go on without them.

                  Now the obvious inflation from trillions of Q.E can no longer be dismissed ,the banks are reigning in loans because they know when prices accelerate by another 30% in one year it has finally become unsustainable.

                  Interest rates are an artificial construct to stimulate spending.

                  5 billion per annum profit to foreign banks….all done in the best…possible taste!

            • roblogic 9.2.1.1.1.3

              You have it backwards. Family formation and establishment of households is hugely delayed, or not possible at all, because of the low incomes and high cost of living in NZ, this archipelago of greed and selfishness, where we steal the future from our own children.

              • alwyn

                You may be right. I only noticed this after I had posted my comment at 10.06 am where I alluded to the option you mention.

                How would one decide on the direction of the causality? Do you have any way you can think of that will differentiate between the two options?

                At the moment I can't think of one.

                • arkie

                  You could ask people?

                  Still struggling from the 2008 financial crisis, millennials have delayed major life milestones, such as having children.

                  Now, hit by the coronavirus and yet another economic crisis, a significant share of this generation is less inclined to start a family, underlining fears among some economists of a baby bust that could have far-reaching consequences for the economy.

                  According to a new Morning Consult survey, 17 percent of 572 millennials (those ages 24 to 39) who don’t have children said they would further delay having them because of the pandemic, and 15 percent said they are less interested in having children at all because of COVID-19. Only 7 percent of this group said they are more interested in having children due to the pandemic.

                  https://morningconsult.com/2020/09/28/millennials-economy-children-poll/

                  • alwyn

                    I'm not sure that this survey done in the United States would be terribly relevant to New Zealand conditions.

                    It also seems to be mainly about their reaction to the Covid 19 pandemic, which has only been here for about 2 years whereas our statistics show that later marriage and older parents has been the pattern for at least 40 years.

                    • arkie

                      I was highlighting a survey which showed some evidence that millennials have been delaying starting a family but also to point out that surveys are the ideal way to determine peoples thoughts about their own situation.

                      In my admittedly short search I found numerous studies from around the world showing a lot of millennials are delaying these 'big life steps' because of their financial position, I am fairly confident the results would be the same here and the anecdata I know of mostly supports this.

                    • alwyn

                      OK. I took the topic a little too literally I see,

                      How could we distinguish between the options for putting off having children, or getting married perhaps, to separate the effects of, say, "I need to work fulltime to keep up my progress in my wonderful career" from "I can't afford to have children because I need the money from my job and can't cut back on my hours".

                    • arkie

                      Write a survey and ask them. That's how you do that analysis. Better than trying force a theory by inference.

    • arkie 9.3

      No, you don't have a right to own a house. Or even a right to a mortgage

      A person has a right to housing however. And so many people have to rent, which is also poorly regulated, and favours the property owners over everyone else.

      Half of all adults now live in rented homes. The home ownership rate is at a 70-year low.

      A recent study found most Auckland rental purchases don’t stack up in any conventional investment sense. Buyers are instead speculating in the expectation of tax-free capital gains. The rents they take in are often an afterthought – albeit one that is sucking up more and more of our incomes. The imbalance is huge.

      Because it’s not just that fewer of us own houses than before. It’s that those who do are increasingly investors, not owner-occupiers. Investors’ share of the housing stock has increased 191% since the late 80s, compared to a 37% increase for owner-occupiers. Investors are largely buying up existing homes, not building new ones. When they do build homes, they are mostly for the upper end of the market.

      https://thespinoff.co.nz/money/22-12-2021/all-i-want-for-christmas-is-a-landlord-register

    • Blazer 9.4

      'The right to housing is the economic, social and cultural right to adequate housing and shelter. It is recognized in some national constitutions and in the Universal Declaration of Human Rights and International Covenant on Economic, Social and Cultural Rights.'-wiki

      So no right to own a house or a mortgage….put em in motels=problem solved.

    • Foreign waka 9.5

      Ad: wrong

      Every living person has a right to work and provide for themselves and their family adequate housing, food and clothes and living with dignity. Human rights is not a tradeable item.

  9. Stuart Munro 10

    I left the Greens way back when they declined to adopt a CGT. Then the dirty politics folk (the exclusive brethren) put out a leaflet 2 days before the election claiming the Greens would introduce a CGT. Lying bastards – and they got off scot free.

    I was busy in China for a while after that – but my initial analysis stands. We needed a CGT then, and we need one even more now. We cannot repose much hope of our parliament delivering one however – the corruption runs too deep.

    We are a nation of sheep, led by goats and monkeys. On a good day.

    • arkie 10.1

      The Greens still advocate for a CGT? It's Labour, specifically Ardern who ruled it out.

      https://www.rnz.co.nz/news/political/438535/greens-urge-capital-gains-tax-in-plan-to-address-housing-crisis

      • Herodotus 10.1.1

        So how does a CGT solve the affordability issue?? There are plenty of countries that have CGT and still have large (perhaps not as severe ) increases as we have here.

        not one person supporting a cgt has commented how that will improve affordability, and I will take that further nothing that I can find on the Green Party website comments on this either.

        • weka 10.1.1.1

          it doesn't solve the affordability issue, it's not meant to. It's meant to slow the buying and selling of property by investors.

        • RedLogix 10.1.1.2

          You are correct. Every measure taken by govts over the past decade have failed to touch the issue. A CGT will only make matters worse – and the Greens have a long history of bad ideas.

          I voted for the Greens four elections in a row, in the expectation that their good intentions would translate into good policy. It was a bitter lesson to understand that the exact opposite happens every time.

        • KJT 10.1.1.3

          There are plenty of countries that have CGT and still have large (perhaps not as severe ) increases as we have here.

        • KJT 10.1.1.4

          Anything that slows speculation will improve affordability.. CGT included.

          "There are plenty of countries that have CGT and still have large (perhaps not as severe ) increases as we have here".

          You answered your own question. "Less severe".

          The idea that "CGT won't work" has gained credibility from repetition, not evidence!

          The evidence around the world, is that taxes on speculation do slow it down.

          In NZ, CGT is obviously not enough on its's on to slow the runaway train. Other measures such as mass State house building will be needed to dampen speculative expectations.

          The real point of CGT, however, is tax fairness, and removing the economic distortion of untaxed wealth. In NZ taxes are disproportionately paid by middle income wage earners.

          • Herodotus 10.1.1.4.1

            In NZ taxes are disproportionately paid by middle income wage earners. – glad there are others that have this same thought 👍.

            the reason imo is that their main source of income that is taxed is PAYE and GST no ability to minimise any tax, and they to the main own 1 property. Sure there is increase in wealth but own 1 property and live in 1.

            I still cannot find how a CGT will undo the massive (up to 100%).property increases over the current labour govts time in power, with pay increases for most at best in line with inflation(and let’s not forget the loss in real terms due to tax creep).

    • Foreign waka 10.2

      Vested interests will not allow this. Parliamentarians to a large extend would be affected for a start and lets just look at the building of bolt holes for all those overseas residing "residence" holders. Not to mention all the land barons. Its like the 1600's in disguise.

      • arkie 10.2.1

        Once upon a time a landed gentry dominated the South Island. Just 1% of landowners owned 78% of the farmland. But then the government stepped in. Over a decade from 1892, it expropriated – sometimes forcefully – 176 South Island properties, dividing them into 3,500 farms that were then allocated to small farmers by ballot. Conservatives called it the work of “socialist devils”, but it worked. By 1915, one in ten farmers worked land that had been subdivided from a great estate.

        https://thespinoff.co.nz/money/22-12-2021/all-i-want-for-christmas-is-a-landlord-register

        The party at the time was the New Zealand Liberal Party. A party that arguably still exists in blue and red flavours. Also interesting to see that mislabeling liberals as ‘socialist’ has a long tradition in NZ too.

        • alwyn 10.2.1.1

          Ah. The New Zealand Liberal Party.

          Those were the days. In addition to creating a large class of small land-owning farmers they provided old age pensions, created the industrial relations system for settling disputes which was accepted by both employers and unions and extended voting rights for women in 1893.

          The remnants of the Party merged with the United Party to create the National Party. They would seem to have Weka's interests at heart. Perhaps Weka should switch her vote to National?

          Those really were the days

    • mikesh 10.3

      We already have a quasi CGT in the brightline test. All it does, however, is provide further proof – if, indeed, further proof were needed – of the uselessness of capital gains taxes when it comes to controlling property prices. What is really needed is a land tax, so the problem with a CGT, once introduced, would be that people would say "why do we need a land tax when we already have a capital gains tax"

      Stopping the banks creating money would also help,.

      • Nic the NZer 10.3.1

        New Zealand has existing land taxes also, they are called rates.

        • mikesh 10.3.1.1

          Rates are not taxes, since they are paid to local authorities rather than to central governments. They are designed merely to recover local governments' costs, while land taxes would be based on land values rather than governmental costs.

          • Nic the NZer 10.3.1.1.1

            Rates are a tax and the amount due is worked out split between the land value and the value of improvements (the property built on the land). Of course these days the land value is the most significant of those.

            • mikesh 10.3.1.1.1.1

              Rates are based on an authority's costs, and are more of a re-imbursement than a tax. That's why rates attract GST. Taxes are based on percentages – of land values, incomes etc.

                • mikesh

                  "What's in a name" as Shakespeare said. The point is that rates, whether one calls them "taxes" or not, and real taxes are two different things.

                  • Nic the NZer

                    I'm no expert, but when Juliet says "What's in a name? That which we call a rose by any other name would smell as sweet." to Romeo she (Shakespeare) seems to be implying quite the opposite of your point, that she would love Romeo if he is wearing the name Montague or not.

                    So I don't think it makes much difference if we call them Rates or Council Taxes (as in the UK) in how they impact the economy.

                    • mikesh

                      Rates affect only particular localities, with different rates of "rates" being charged in different areas. Land taxes are universal, so where land is is cheaper, and the tax therefor lower, an incentive is provided for businesses and people to move to those areas. Rates provide no such incentive; in fact rates, being based on local authority costs, can actually be greater where land is cheaper.

                      Land taxes are better at rationing the benefits of different locations.

                    • Nic the NZer

                      Are there any councils you want to call out in particular for driving people away from their cheap property and wealth of opportunities with unreasonably high rates?

                    • mikesh

                      No. But if there are none that would just prove my point.

                    • Nic the NZer

                      If there are none then rates are functionally an effective land tax as far as you seem to be saying, because you can't identify the extremes of the behavior your describing anyway. It's not like councils all apply the same rates.

                      How much rates do we need to abolish rates for your land tax to work? I mean if your paying this land tax on top you still have a bunch of differing services and costs between councils which apparently invalidates the policy.

                    • mikesh

                      If there are none then rates are functionally an effective land tax

                      No. It just means That rates are having no economic effect.

                      However, just to conclude this rather stupid argument, I would have to add that, even if rates were in fact land tax equivalents payable to local authorities, this should not stop installing additional land payable to government.

                    • Nic the NZer

                      So to recap, rates are not land taxes, because they have an economic effect as different councils charge rates matching their expenditure, but then we can't discuss actual examples of this because, rates are not land taxes and they have no economic effect and if we just put in an additional reasonably flat tax that will have an economic effect (because, its called a land tax after all, and not that the name is actually important to your argument) and by increasing the direct costs of owning a house this will make it cheaper to own.

                    • mikesh

                      No. Rates are not taxes because they are not paid to central government. Full stop.

                      Therefor, the existence of rates should not prevent central government imposing its own land tax, which is what you seem to be implying. And if that is not what you are implying, then why the hell are arguing about that in the first place by trying to imply that we "already have a land tax in the form of rates".

                      So, who really cares. If you want to call rates “taxes”, that’s your problem.

                    • Nic the NZer

                      My original point was that, as we have quasi CGT taxes which don't appear to have much effect, we also have quasi land taxes which also don't appear to have much effect.

                • mikesh

                  Personally, I don't agree with the brightline test basis. That all started when the IRD said that if a property (or other asset) was purchased "for the purpose of resale" then any profits made would be taxable. This didn't seem to work since they could never show that that was the case. I understand that they originally stipulated six months tenure before the rule took effect, but this didn't seem sufficient time to catch ALL the bad guys so John Key increased te period to two years; when that didn't seem to work Grant Robinson increased it first to five years and now to ten years. What nonsense! Nobody seems to have realized that the IRD's criterion relying on "intent" or "purpose" is just downright silly.

                  The brightline test suffers from the same defect as a CGT. It is not levied until after a property is sold, and it can therefor have no effect on the housing market.

      • Stuart Munro 10.3.2

        There are several reasons for a CGT, which of course will not resolve the housing crisis on its own. One reason is justice – working people must pay tax, but the unproductive (and in fact counterproductive) parasitic so-called 'investor' class have a myriad of avoidance options. A government with any integrity would be concerned to level that playing field.

        • mikesh 10.3.2.1

          Justice has nothing to do with it. The only persons affected by capital gains are the two parties to the property transaction. It has nothing to do with anybody else. Nobody else is made worse off as a result.

          Justice would be better served with a land tax.

          • Stuart Munro 10.3.2.1.1

            Justice has everything to do with it.

            The speculators take the undeserved gains from property and use them to compete for scarce resources against actual working people. And the thing they do most often is to increase their investment in property – after all, one would need to be unusually stupid to entrust one's money to NZX.

            • mikesh 10.3.2.1.1.1

              The speculators take the undeserved gains from property and use them to compete for scarce resources against actual working people. The is only a certain amount of income in play. No addition to income has bee created as a result of the transaction All that has happened is that the buyer has transferred part of his income to the seller.

              This alleged "crime" would be offset by the fact that the buyer of the property would have less to use to compete for scarce resources against actual working people. "Actual working people” may include both the seller and buyer.

              one would need to be unusually stupid to entrust one's money to NZX.

              I have entrusted part of my money to NZX. I don't consider myself "stupid".

          • KJT 10.3.2.1.2

            All that unearned wealth, high rents, misallocated investment, and the impossibility of buying a house " only effects those who can buy and sell. Sure.

            There is no moral difference between hoarding houses in a shortage, pushing costs up for everyone else, and hoarding food during a pandemic to onsell at inflated prices.

            • mikesh 10.3.2.1.2.1

              "Speculators" are not hoarding houses if they rent them out to tenants, or if they flick them off quickly after purchase. I agree that purchasing houses and leaving them unoccupied represents a moral problem but land taxes would be a better remedy against that than a CGT.

              • KJT

                Why the hell would"land taxes work better than a CGT”, to slow speculation? Where’s your evidence apart from your often stated prejudice against a CGT.

                • Nic the NZer

                  You can probably dig the answer to this mystery out of the thread beginning at 10.3.1.

                  • mikesh

                    !0.3.1 is a separate issue. The reason I prefer land taxes is because they affect an owner's ongoing day to day costs, while a CGT, being levied after property is sold, does not. There are other reasons, but that is the main practical reason.

    • pat 10.4

      We effectively have a CG tax now (an other economies have had them for years) and the problem continues….the effect is marginal.

      The settings were deliberate in creating credit growth and unfortunately NZ has pretty much only one asset class the banks are willing to lend on, other economies are less dependent on property as a source of security for lending.

      The damage was done a long time ago but we had opportunities along the way to reset without too much pain but those opportunities wernt taken….nobody wanted to make the difficult call, so here we are.

    • KJT 10.5

      Sigh.

      It wasn't the Greens who "refused to support a CGT.

      It is still Greens policy. It was even publicised as policy by the Greens, going into the last election. Made much of by the unthinking right wing.

  10. Cricklewood 11

    The real winners are the banks, massive mortgages = massive amounts of interest and from an NZ perspective massive amounts of money out of our economy.

    I'd like to see a progressive stamp duty to price out speculators, commissioning new builds would be exempt.

    The Banking industry has alot to answer for in NZ they're directly behind some of our climate and water quality problems in that the willfully allowed loans to buy farms and convert to dairy which were only sustainable in terms of paying back by over stocking, palm kernel and huge amounts of irrigation.

    • Blazer 11.1

      The big 4 NZ banks are subs of the aussie entities CBA,ANZ,NAB,WPAC…whose majority shareholders are foreign,mainly Wall St banks.

      Exporting profits is the name of the game…whether its mortgage revenue or bananas…it matters …not!

      Shear those sheep …ewe can't go..wrong.

    • mikesh 11.2

      Imposing a 100% reserve ratio on the banks, stopping them creating money, is long overdue.

      • Nic the NZer 11.2.1

        Fortunately NZ again has an effective 100% reserve ratio in the form of the bank deposit guarantee. That means the first 100K of any deposits held with a NZ bank will be recovered in the event of a bank funding issue. That's effectively identical to if the institution is forced to hold 100K of reserves at the RBNZ for every 100K of deposits it holds, except that it requires fewer reserves be in the clearance system.

        Actual effective bank runs were stopped after 2008 with the creation and implementation of similar deposit guarantees (including in New Zealand).

        • pat 11.2.1.1

          Not yet we dont

          "The Reserve Bank will lead the implementation of the new Deposit Takers Act. Deposit insurance is being prioritised ahead of the rest of the Act coming into effect and is expected to be up and running in 2023. The next opportunity for further public input will be an exposure draft of the Act later this year."

          https://www.rbnz.govt.nz/news/2021/04/new-deposit-takers-act-a-step-closer

          And as Australia has discovered a deposit guarantee may not prevent bail in.

        • mikesh 11.2.1.2

          When Muldoon was finance minister he set the reserve ratio applicable to the trading banks, and it was usually set at something between 20 and 25 percent. These days that ratio is probably too low to be efficacious so he banks, for safety purposes, have to rely on mandated capital requirements. However, that doesn't seem to prevent them increasing the money supply.

          Whatever one might say about Muldoon, he seems to have known what he was doing when it came to monetary policy.

          • Nic the NZer 11.2.1.2.1

            The mandatory reserve ratio in NZ is zero.

            But if you understand the actual working of financial institutions you also realize a reserve ratio doesn't constrain banks from issuing credit in that way. This is because the RBNZ is always willing to issue reserves at the OCR as the alternative is an unnecessary bank default.

            The RBNZ could implement and require 100% reserves be held, also borrowed at the OCR, in order to implement a 100% reserve policy. But ultimately they would just end up having to add more reserves to the system to validate every additional credit issued. The alternative is unnecessary defaults when some bank didn't clear its payments day to day.

            • mikesh 11.2.1.2.1.1

              The mandatory reserve ratio in NZ is zero.

              I know that. And I would think that the actual ratio is also very low.

              We are not talking about bank defaults. We are talking about the capacities of the trading banks to create credit and pour the money into the housing sector. This seems to be one of the factors which are giving rise to the increases in property prices.

              • Nic the NZer

                The problem here is the reserve 'constraint' your proposing isn't actually a constraint. Even in countries with a reserve ratio banks are not constrained in their lending by it, they are still constrained by the applications of credit worthy borrowers they receive (as in NZ).

                This should be absolutely clear because the RBNZ has a well known policy of lending what ever reserves are asked to any NZ bank in good standing at the OCR. This makes it clear they are never constrained by quantity but potentially constrained by the markup they can on-charge to borrowers.

                When settlement happens between banks then they need sufficient reserves to clear payments to other banks. If the reserve bank didn't provide reserves there is a possibility that one bank will not be able to clear its payments to another (and will default). That includes both regular payments and settlement of mortgage payments on new lending. This is the fundamental reason that the central bank will always provide sufficient reserves to clear what ever lending banks are doing.

                From the other side there was the period in economics known as monetarism. This was strongest between 1980 until 1986 in NZ. During this time central banks were carefully observing the reserves in their banking systems with the idea that this will correlate with bank lending directly. In the UK this policy was a disaster so bad that Thatcher later claimed she never believed in it. Greenspan later admitted to congress that they knew of no proxy for money, and it certainly wasn't reserves. The RBNZ stopped talking like this around 1986 (though they probably didn't take it very seriously anyway). So the concept your talking about was tried quite seriously (despite notable economists knowing better and saying so publicly) and it doesn't add up.

                • mikesh

                  The problem here is the reserve 'constraint' your proposing isn't actually a constraint. Even in countries with a reserve ratio banks are not constrained in their lending by it, they are still constrained by the applications of credit worthy borrowers they receive (as in NZ).

                  I don't think this would be the case with a 100% ratio. And even with a lower ratio, while money can be still be created, there is an upper limit to how much.

                  This should be absolutely clear because the RBNZ has a well known policy of lending what ever reserves are asked to any NZ bank in good standing at the OCR. This makes it clear they are never constrained by quantity but potentially constrained by the markup they can on-charge to borrowers.

                  This is true, but it doesn't have to be. On top of that any loans from RBNZ can come with strings attached i.e. perhaps no lending for housing purposes.

                  • Nic the NZer

                    "I don't think this would be the case with a 100% ratio. And even with a lower ratio, while money can be still be created, there is an upper limit to how much."

                    Here is the Bank of England telling you this is false.

                    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy

                    "The reality of how money is created today differs from the description found in some economics textbooks:

                    • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
                    • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits."
                    • Blazer

                      '

                      • 'In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits."
                      • Q-how is 'normal' times defined?
                      • Is the Fed a central bank…if so…don't derivatives and other financial products multipliers
                    • Nic the NZer

                      As far as I know the BoE has never fixed the amount of money in circulation. I don't know of any successful examples of doing this as a policy. There were some attempts in the UK in the 1980s to target the amount of money in circulation, but targets were missed. So normal is pretty broad there.

                      Derivatives are bets, not multipliers of actual money, though the loser of the bets will be expected to pay up eventually, and this may involve making purchases with actual money. An expansion in derivatives is a bit like more people going to the TAB for a big event.

                    • Blazer

                      So times are still 'normal'….not withstanding Q.E of epic proportions.

                      And fractional reserve banking is …dead and buried?

                    • Nic the NZer

                      The idea of fractional reserve banking was always just an idea and not an accurate description of how bank lending actually works. You can find this in Keynes writings and earlier in the writing of others.

                      and just because a central bank policy results in a large expansion of their balance sheet, this doesn't mean they started using quantity targets. But I don't expect I should have to explain how to read english.

                    • mikesh

                      In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits."

                      That's not what I was saying. I said that where a ratio is being applied it sets an upper limit to the amount of credit that the banks can create. A central bank doesn't necessarily have anything to do with it; a trading bank may install a ratio itself for prudential reasons (though these days trading banks probably don't). The problem seems to be that providing RBNZ with independence seems to have prevented finance ministers intervening and setting the reserve ratio himself like Muldoon used to do.

                    • Blazer

                      'An expansion in derivatives is a bit like more people going to the TAB for a big event'

                      No one needs to explain how to read English,but someone may need to learn how the TAB operates.

                    • Nic the NZer

                      @mikesh

                      As the BoE paper repeats multiple times a reserve ratio does not limit commercial bank lending (and M3 money creation).

                      You can divide M3 by M1 all you like and call that a reserve ratio, but this doesn't make it either stable or a limitation on commercial bank behavior.

                      @Blazer

                      I'll obviously have to defer to your expertise on TAB operations.

                    • mikesh

                      As the BoE paper repeats multiple times a reserve ratio does not limit commercial bank lending (and M3 money creation).

                      That's pretty obvious given that the BoE is prepared to to lend the banks all the money they want. But I'm arguing from a different position from that, a position in which central banks endeavor to promote stability.

                    • Nic the NZer

                      However, as mentioned the BoE and UK treasury set and tried to hit specific M3 targets during the early 1980s in a well known Monetarist period of UK history. Their expectation was that limiting the available M1 would result in some stability of M3 over the longer term (it was well understood of course this would not work short term). In order to target this goal fiscal policy was (for a while) subservient to spending limits. This was during a period when both fixed exchange rates, managed exchange rate policies and many more limits on bank credit creation were in place.

                      The result of the experiment was however that targets for M3 were consistently exceeded despite the spending limits imposed on the UK treasury (which was very bad for UK manufacturing sector and the UK economy in general). Of course it was fairly well understood by the UK Keynesians (and others) that commercial bank lending runs from credit to money anyway (as described by the BoE paper) so the ideas being brought in wouldn't work.

                      The same set of ideas were more or less tried across then industrial nations (US, Japan, NZ, Australia) but failed to deliver anywhere. They were generally abandoned by 1986 as unworkable and this concept of credit creation has been relegated to economics text books instead of actual practice (with the obvious problem that such text books no longer describe actual central bank practice).

            • Blazer 11.2.1.2.1.2

              'The mandatory reserve ratio in NZ is zero'

              'However, the veil was beginning to slip in recent months, particularly around ANZ. The Reserve Bank announced in mid-May it had discovered ANZ had not been using the correct model for calculating its own capital for five years, apparently due to an internal oversight. This came at the same time as the Reserve Bank was proposing banks effectively double their capital reserves at a cost of more than $20 billion. The Reserve Bank immediately ordered ANZ to increase its capital by $285 million to $760 million.'-RNZ 2019

              What does this mean then?

              • Nic the NZer

                Capital and bank reserves are different. Reserves are central bank monies (notes and coins and their electronic equivalents). Capital is much more broad including equity, securities and quite a wide class of assets which are weighted in a capital model reflecting their value after they are traded.

                ANZs capital model for this was not approved.

                https://en.wikipedia.org/wiki/Reserve_requirement

                https://en.wikipedia.org/wiki/Capital_requirement

                • Blazer

                  Even the definitions seem quite ambiguous to…me.

                  So capital,capital reserves and reserves are separate when applied to our major banks.(not RBNZ)

                  • Nic the NZer

                    Even the definitions seem quite ambiguous to…me.

                    Make sure to go through the specifics with your regulator before applying for a banking license.

                    • Blazer

                      .For sure.

                      You may need to do some homework' too.

                      'The mandatory reserve ratio in NZ is zero.'

                      The capital adequacy framework incorporates the following main parts:

                      • capital ratios
                      • determination of qualifying capital
                      • determination of exposures
                      • internal capital adequacy assessment process
                      • disclosure.

                      A full description of all the requirements is set out in the Banking Prudential Requirements (BPR) documents. A short summary is provided below.

                      Capital ratios

                      Locally incorporated registered banks in New Zealand are required to comply with the following minimum capital ratios, which are calculated as the amount of capital that must be held in relation to risk-weighted exposures (including market and operational risk):

                      • a common equity Tier 1 capital ratio of 4.5%
                      • a Tier 1 capital ratio of 6%
                      • a total capital ratio of 8%.

                      Registered banks must have a prudential capital buffer (PCB) of at least 2.5% of risk-weighted exposures, completely made up of common equity Tier 1 (CET1) capital, over and above the minimum requirements listed above.

                    • Nic the NZer

                      I relinquish my blaze banking license effective immediately.

          • Patricia Bremner 11.2.1.2.2

            Mikesh Muldoon .. Really? He went cap in hand to the World Bank every opportunity.
            He also knew we would have to devalue and did not hand over power for 3 days.
            His rich mates took their money off shore and waited for the devaluation. He was an ego driven fool.

            • Blazer 11.2.1.2.2.1

              Dead right ..Muldoon was an absolute dud at finance…ex army book keeper ,if my memory serves me..well.

            • mikesh 11.2.1.2.2.2

              Muldoon .. Really? He went cap in hand to the World Bank every opportunity.

              He wanted, rightly or wrongly, to maintain the value of the NZ dollar, knowing that to do otherwise would lead to inflation, which in his time was already bad enough, and which would have led to even more wage/price spiralling. Roger Douglas eventually put things right by devaluing, but look how popular he has become amongst the left.

  11. pat 12

    There is no painless way out of this….and sadly much of the pain will be felt by those who are blameless and we seek to help.

    A speculative bubble cannot be gently deflated…..and nor can it continue indefinitely.

    • weka 12.1

      A speculative bubble cannot be gently deflated

      Why not?

      • Blazer 12.1.1

        Did you ever blow bubbles as a kid?

        When you pop them …they burst…can't pop them…slowly..same with speculative bubbles…rush to the exit.

        When share prices plunge ,people try to guess the bottom..it is referred to as trying to catch a falling..knife=a bloody..finale.

        • weka 12.1.1.1

          Use a balloon metaphor and it works.

          The point is to not have it plunge (and if Pat is right and that's inevitable anyway, best we get on with doing it a different way). Turei was talking about deflating the balloon slowly not fast. I'm asking why that can't be done.

          • KJT 12.1.1.1.1

            The "bubble" will only deflate if speculators are either prevented from buying, or the expectations of making more money, than other investments, are removed.

            As we have seen many times in history, speculators are like Lemmings. Once the market starts dropping they exit as fast as they can before it drops further. Crashing it.

            So much money is tied up in housing that a crash would cause a recession in NZ, and the fall of the Government that did it.

            Slowing the rise to allow wages to catch up is the best option available. It has gone too far for a swift correction to be harmless.

            CGT, massive State house building, and similar, which put downward pressure on speculation over time, may be the only options left.

            • mikesh 12.1.1.1.1.1

              Wages "catchup" is not really a solution. As wages increase the amounts people are prepared to spend on housing will increase, so prices will continue to rise. CGT doesn't seem to stop house price rises either.

              Even if whatever solution we eventually devise causes a sharp and massive decline in house prices, and brings about a deep depression, I think we would still survive.

              Even if bank credit dried up the government could still expand lending through kiwibank.

              • KJT

                No one is claiming CGT will "stop" land price inflation. No one thing will do that, as I said.

                It does take some of the edge off, however. As we have seen.

                The Government has to walk a tight rope between slowing demand and crashing the market. I can see why they are taking the slow approach. Too slow for my liking, but there is a rational behind it.

      • pat 12.1.2

        Debt deflation

        Asset values decrease, demand flips, defaults increase and credit contracts…..nobody wants to lend if they wont get their money back…..and that means less spending, less employment and bankruptcies….a deflationary spiral

        If the effect is severe enough you have a depression.

        If it was done early enough in the speculation then the bubble would have been smaller and the impact not so great…compare debt ratios in 2017 when MT floated the idea to debt ratios now.

        • weka 12.1.2.1

          what does demand flips mean? People stop buying and selling houses?

          • pat 12.1.2.1.1

            Instead of everyone wanting to buy (FOMO) everyone (or many) wants to sell…. and price drops.

            If you think prices are going to continue to decrease you will get out at the highest possible point to reduce your loses( or possibly avoid a loss)…..and if you have finance the choice may not be yours, because the lender wants the same, to reduce their loses.

            • weka 12.1.2.1.1.1

              but surely there is a natural limit on that. People who need a place to live won't have to sell. People who are afraid of having an upside down mortgage or have investment properties will. How big a portion of the market is that? Won't it just mean houses get traded less often? Investment properties can become rentals. Or the govt buys them for social housing.

              • pat

                Yes there is a limit…there are around 30% of houses that are mortgage free…but it is at the margins that price is set. Remember that the point of encouraging rising prices is the wealth effect so even people who bought some years ago have topped up their mortgages to pay for lifestyle (or support SMEs) so a significant proportion of properties are at risk and those are the marginal price setters.

                And once a spiral begins that pool increases as the reduced activity impacts more and more the ability to pay….debts get called in and assets need to be sold to clear debt….and we have most of our capital in housing.

                The Gov has been buying for social housing already but they cant buy all the available property….they may end up owning a lot of the debt however but that comes at a cost in a reduction in spending elsewhere…..as said theres no painless solution, we let the bubble get too big for too long.

                • weka

                  but why would people with mortgages on their family home be selling if prices are dropping?

                  Debts called in, is that the banks? Why would they be doing that?

                  • pat

                    Who sets the price of houses?….those who own a home and never sell it?

                    The price is set by the (marginal) buyer….and if there is a dearth of buyers the price falls.

                    Debts called in by banks or creditors of all sorts, it may be a trade supplier or even the IRD…if you owe money and cant pay but have assets those assets can be sold to reduce debt, (the debt dosnt have to be related to a property)…and as said NZers have most of their assets in property. Banks will be discrete about forced sales if they can be (theres quite a bit of anecdotal of 'suggested' sales already) but if a spiral develops they will be in boots and all….they hate loses as much as anyone, not to mention regulatory requirements.

                    • Blazer

                      Fortunately the banks have stress tested all their customers at much higher interest rates,than the prevailing rate.wink

                    • pat

                      So they say.

                      But interest rates are on the move and suddenly credit is more difficult.

                      Judge them by what they do,

                  • mikesh

                    At present people seem to be taking out short term mortgages which need to be "rolled over" from time to time.

  12. Jenny how to get there 13

    The Green Party

    Dying quietly in a back room.

    I did a double take on reading this post. Isn't Marama Davidson the co-leader of the Green Party?
    It was then I noticed the date on the Green Party co-leader's statement on housing.

    It is great that Weka has brought this matter to the attention of our readers. That she had to go back to 2016 to dredge up a statement from the former Green Party co-leader Metiria Turei in order to do so, is shocking.

  13. The dramatic increase in property prices has coincided with the money printing that has been happening around the world, including NZ, in order to provide liquidity in the Covid crisis.

    The law of supply and demand applies to fiat currencies as much as anything else. The effect of more currency being created is that the value of currency falls, meaning more currency is required to purchase finite assets such as property.

    So, a lot of the increase in property values is to do with currency values falling rather than houses increasing in true value.

    The inequitable part of this equation is that those who don't own property are effectively taking a huge cut in real income. That is, if their income doesn't increase at the same rate as property values, they are effectively falling further behind.

    Now we are in this situation, it is very difficult to unwind it because of the economic catastrophy that would unfold should values suddenly fall back to previous levels.

    The experience in Japan in this respect is a salutary warning for New Zealand, as a lot of the same conditions apply today.

    https://en.wikipedia.org/wiki/Japanese_asset_price_bubble

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    3 weeks ago