By Bernard Hickey
This week's economic and political debate has been dominated by concerns about Auckland's surging house prices.
Reserve Bank Governor Graeme Wheeler warned a burst of high loan to value ratio (LVR) lending by banks was adding fuel to the tinder of record low and recently falling fixed mortgage rates.
Housing Minister Nick Smith railed against Auckland's Metropolitan Urban Limits on land supply on the fringes of Auckland and blamed it for a tripling of section prices in parts of Auckland.
BNZ's Tony Alexander released a survey he said refuted suggestions non-resident Chinese buyers were inflating prices.
There are plenty of reasons put forward to explain the 14% rise in Auckland prices in the last year, but few have put forward a package of solutions.
Here's eight kicking around at the moment:
1. Lock Len Brown and John Key in a room until they come out with an agreement to open up lots of greenfields and brownfields land to build at least 20,000 affordable dwellings a year for the next 10 years. That's 10 times more than was built in the last 10 years. That deal should include investment from both governments in the infrastructure needed to support those 200,000 dwellings, including transport.
2. Impose an Auckland land tax to help pay for it. That would immediately reduce land prices 15-20% and remove the incentive for land bankers to sit on land for tax-free capital gains.
3. Introduce macro-prudential controls to slow high LVR lending, including LVR limits, extra capital requirements for mortgage lending and making banks fund all their lending locally through term deposits. These are tools already introduced and used by Hong Kong, Singapore, Israel, Sweden and Norway.
4. Restrict or control migration so fewer migrants from offshore, returning expats and migrants from other parts of New Zealand are able to move to Auckland. That could include a regional development strategy.
5. Restrict non-resident investment in existing houses in Auckland, as Hong Kong and Australia have done through stamp duties or outright bans.
6. Encourage the development of or build one or two large scale pre-fabricated house manufacturers to drag down the cost of affordable house building.
7. Launch a massive apprenticeship training scheme in Auckland for trades staff to build the 400,000 dwellings needed over the next 30 years.
8. Increase the Official Cash Rate to 3% from 2.5% to cool the doubling of lending growth over the last year.
Politically, these will all damage the leveraged-up equity stakes of existing property owners.
But if they are not done, the economic and political damage will be felt for years to come.
The government's claims to restructure the economy to become more productive and less indebted are in tatters.
We are now spending more than we're earning again and the banks are starting to borrow overseas again to fund the lending growth, putting yet more pressure on the currency and our net foreign debt.
Our current account deficit is blowing out again and a generation of young families in Auckland are seeing their home ownership dreams dissolve in front of them, or even worse, made possible only with crushing and dangerous debt.
Our politicians face a choice. They can propose change to benefit the next generation and the poor.
Or they can cling to the status quo and risk the eventual wrath of the poor and the young.
This article was first published in the Herald on Sunday. It is used here with permission.