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The NZ Initiative's Jason Krupp says whatever your views on foreign investors, the bare fact is that the cure to New Zealand’s housing crisis is supply

The NZ Initiative's Jason Krupp says whatever your views on foreign investors, the bare fact is that the cure to New Zealand’s housing crisis is supply

By Jason Krupp* 

Amid the rancorous debate about whether a land tax should be imposed on non-resident property buyers it is vital to remember what caused New Zealand’s housing crisis in the first place: a sustained lack of land supply.

Far too often in the discussion on how to cool Auckland’s white-hot housing market the focus strays from this fundamental fact, and falls on demand-side factors. The most recent of which is a land tax, put forward by Prime Minister John Key as a means of stemming the deluge of cheap money into the Auckland housing market.

The problem with this tax is that it will do little to stall the momentum of the city’s housing affordability crisis. That is because a tax is ineffective, and worse, targets the wrong problem.

Consider that if you are a property speculator, the optimal time to sell up and realise your gain is when the return from your investment is equal to the costs of capital. Until that point you may as well sit back and watch your asset values grow. Now factor in that median house prices in Auckland rose 14% in the year ending March 2016 according to REINZ data, while floating mortgage rates were pinging around the 5.5% mark (and offshore borrowing can be even cheaper than this).

A tax would have to be set so high that it disincentivised foreign speculators altogether. This is of course possible, but in all likelihood it would only swap foreign investors for domestic ones. After all, who can ignore an 8.5% net increase in the value of their investment when five year term deposits only return 3.8%?

Most importantly, a land tax would not build any new houses in a city currently experiencing rapid population growth. That is the root cause of Auckland’s housing crisis and the reason why property speculation is possible in the first place. Amid a severely constrained supply, each new person moving to Auckland drives up the returns on housing investment relative to the costs of capital.

If we want to tackle this problem the answer is to release so much land that there is little incentive to speculate.

Speak to central or local government officials and they will tell you they are doing exactly that. The Auckland Unitary Plan, for example, has capacity for around 60,000 dwellings on greenfield land, two-thirds of which are within the old urban growth boundary. That is a significant amount of land that could potentially make a huge difference to housing affordability if it were to be released onto the market in one go.

Only it will not happen. That is because Auckland Council cannot afford to provide the necessary infrastructure due to balance sheet constraints. One such constraint is the binding rule that limits borrowings to 15% of revenue, a threshold that Auckland Council has almost reached.

As such, land is drip fed on to the market, the supply constrained status quo holds amid a booming population, and the incentive to speculate increases. This is particularly so in the case of land bankers, who can see the value of their agriculture land shoot up from $50,000 a hectare to $5 million dollars a hectare once it is up-zoned for residential use.

Of course this vicious cycle cannot last forever, and when it stops the consequences for the country will be disastrous.

If policymakers are serious about tackling housing affordability before this happens they need to accept some uncomfortable truths. The first, to quote economist Arthur Grimes, is that you can have cities that are either cheap-and-big, or small-and-expensive. That means accepting that Auckland must grow beyond its current boundaries. Small-and-cheap is not an option.

The second is that if councils are to solely provide the infrastructure needed to open the land supply spigot, housing affordability will only worsen. Financial constraints such as rates burdens and debt limits mean that new land will only be dribbled onto the market, doing little to address the factors that make speculation possible.

Instead private developers should be allowed to provide their own infrastructure for housing development at the edge of cities. In Houston, the use of Municipal Utility Districts has allowed the city to rapidly expand its residential capacity as its population boomed without relying on the public purse. It should be noted that housing in Houston is now cheaper than it was in the 1980s when adjusting for inflation. And it take three times the median wage to buy the median house there, while in Auckland the median multiple is 10 and rising.

Whatever your views on foreign investors, the bare fact is that the cure to New Zealand’s housing crisis is supply. It is a damning indictment on all of us that in a country the size of the United Kingdom, and a population 14 times smaller, New Zealand’s stability is threatened by housing crisis.


*Jason Krupp is a Research Fellow at The New Zealand Initiative, which provides a fortnightly column for

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How can people say it's only a supply problem when we have net 68 thousand migrants a year. You can't have a supply problem without demand for that supply. Record migration puts pressure on housing and infrastructure. Central govt. wants to blame Auckland Council for Auckland's rising house prices but Immigration is under central govt. control.

Agreed! Well said. Maybe National is thinking of appointing Councillors, like it did at Canterbury Regional Council, because Council is not making enough "supply".
Thing is, there is no government money in the supply chain to make it go faster, or make it bigger. It is all private money.
We do need a national building programme that will deliver more houses/apartments than ever before at affordable prices that can't be on sold for more than the rate of inflation x number of years since purchase. Put your money where your mouth is Johnny.

Of course there's also unnecessary supply constraints from council bureaucracy to lack of competition in building industries.

Houses are not for speculation-or in an ideal model the government would not allow them to be so. There is a solution, but its not the Kiwi way, because for 40 years the easy retirement money has been made by being an Auckland landlord. Hardly never a loss, and a nearly 50 fold return over 40 years-tax free. By contrast I sold a rental home in 1997 in the US which I had held for 12 years after first living it for 7 years. I paid $28k tax on $167k sale. Not only that but since the single family dwelling was not a primary residence, but instead a business asset (for me-not the tenant) my council rates were charged at commercial rates-or nearly double what they would have been had it been my primary home. That would lead to higher rents for the tenant right. Well no, because if the tenants income was low enough then at the end of the year they gained a tax rebate paid out of the landlord's higher council rates. However, main strategy of higher rates for landlords was to insure that single family dwellings stayed out of landlords hands and they didn't get driven up in price in the first place so as not to create businesses out of single family dwellings. Instead in the US investors are driven to invest in multiple occupancy buildings for that purpose. In Auckland the incentive for investors to take over the middle class housing stock has been devastating and the Egalitarian Kiwi model has been left in the dust.
I say at this point the $38 Billion dollar Superfund should set up a "Fannie Mae' type of SOE that allows true 1st home buyers to gain a family home at 5% deposit by means of insuring that mortgage with a 1% Insurance Fee added to the mortgage which stays in effect until the equity reaches 20%. The banks mortgage is therefore insured by the SOE in the event the home owner defaults. Federal Housing Authority mortgages (the main entry point for 1st home buyers in the US since 1937) in the US are financed this way which allows Median income buyers to enter the housing market rather than being condemned to a life of rent.

Interesting idea - this would suit me fine! Not sure about raiding the Superfund to set up the SOE though - the fund might start looking like a typical Kiwi "private pension plan" - over-invested in the housing market...

It's not just houses. You can build as many houses as you want. Without the additional infrastructure such as Transport, Power, Schools, Hospitals, jobs, etc... then those houses are useless.

Question is - Should we need all of this for what effectively amount to non-citizens?

@ Noncents; Yes totally agree, we really need an actual economic infrastructure to support the expansion of new build areas within Auckland. A very simple solution is to massively restrict overseas investors by channelling them in to only providing investment on New Building Programmes. So they're not able to own individual residential properties and are restricted from Land banking.

This would free up government funds to provide the vital infrastructure needed, also massively reducing pressure on the residential housing market.

We quite literally can't afford to ignore the elephant in to room and that is a good 30% plus of Auckland's property market is currently bought up by Overseas Investors, we have to do something to reduce pressure on the market. And that 30% investment could go in to new builds for Auckland.

"The bare fact is" crows the headline. Sorry. I can't see any bare fact in that claim at all. Couldn't find it in the article either. Another baseless snort from the NZ initiative.

Check out this gem from NZ Initiative a year ago:

Restricting foreign ownership involves telling people what they can and can’t do with their private property. It involves the public deciding what private sellers do with their own land, resulting in sellers being forced to accept a lower bid for their land than they otherwise would have.


Must say I'm pretty sick of hearing about it all. Every pundit, every newspaper, every journo, every forum member has an opinion on what is wrong and what should be done. We see new records being broken every week or sales, prices, immigration etc and it all gets plenty of clicks and comments.

The biggest problem though...NOTHING is being done by those with the power to change it.

Well we still have voting power, time to make changes happen!!!

Until I see an opposition party with some back bone and commitment about stopping or stemming the tide I don't see any change that comes from voting. Not to mention the fact voting is a not for some time...

My mate who is lodged in the bowels of the govt bureaucracy tells me there are like 50 or 60 bureaucrats across different departments tied down in looking at the issue. Seems an awful lot of bods.

I don't know about every newspaper. Take Trevett's recent article in the Herald -

Little is reported as raising an issue to the detriment of national, national refutes and it is left at that. The reader is left to ask who was right and who was wrong. Where is the investigative work in that? I could of written that article at half time in the rugby and still had time for a couple of cold ones.

My conclusion is - stick to picking up the free newspapers if you want something to light your fire.


Supply be damned. This is not even a chicken, egg scenario. Demand came first. Fix that and its done but too late for the coming (here already in parts) crisis in traffic congestion, health, education, racial issues and crime.
Our government has out performed "its usual do nothing at the end of the day wait and see" attitude on this one.

I haven't seen a policy from any party that will actually bring the price of a house down to an acceptable level.
What is an acceptable price for a new house or even an older house?
Whatever it is it will still be to expensive for first home buyers.
The horse has bolted and he ain't likely to get caught for a long time.Thats not to say prices won't come down but there would,in my opinion,have to be a major crash for prices to be affordable and then there will be carnage of another type.

Yes, demand is an issue but, unless we have an elastic ability to supply housing, whenever there is a demand jump (extra births, internal migration, returning kiwis, new immigrants, more investors etc etc) then we need to be able to respond.

So, sure, dampen the demand now to give us time to fix the real issue which is lack of elastic supply.

100% right!!!!!!

Vancouver city is having trouble getting new businesses to come to Vancouver because the high price of rent and the cost of housing is so expensive that young people are not being attracted to the city.

It’s now happening in NZild. Talking recently to a couple of seriously talented younger people ready for their next move up the corporate ladder. They accept this’ll mean they need to come to AKL but no way they can afford to buy a property after selling in CHCH as they will not just be going backwards in net residual income, they will be seriously financially stressed. Even after the higher salaries they will receive. Their frustration was obvious.

Not convinced it would be wholesale carnage. Flippers, speculators and many ‘students’ would cut and run but genuine investors and owner occupiers would more likely grimly hold on, even those under water.

SUPPLY! DEMAND! It's supply! No, it's demand! You're wrong! No you're wrong!

Bollocks to all that. It's about the balance/differential between supply and demand. And even that's essentially meaningless without a differentiation between demand for dwellings and demand for speculative tokens. With a completely batsh!t speculative frenzy in progress, supply isn't going to help unless thousands of houses magically fall from the sky overnight.

In Christchurch there is apparently over 5000 sections in northern Christchurch that have proposed ( I don't know if these are just dreams of a developer, or special areas that have been proposed / consented, under active development) - it was comment on the National Program on the 29th of April. There are various subdivisions in Christchurch that are already under development and are being heavily promoted on the radio. There is no supply problem in Christchurch and that is the most likely reason why house prices are going sideways.

What happen to dairy prices with over supply? My point? They will never allow that to happen in regard to housing. That's where corruption of the market place begins! That's why it's not just a basic supply vs demand issue when supply is purposely restricted and held back to hijack the demand price. We don't need dairy or apples etc to survive . We DO however all need housing and that is where this whole issue just stinks of self interested parties manipulating the market to suit themselves . This includes our own government, councils, REA's, speculators & hoarders, and dare I say it.... Banks including our own RB.

While I don't believe in a conspiracy - I do believe that any significant change in Auckland house prices will be the result of something we (New Zealanders) can't or don't control ( and that's when it could get messy) . An improving world economy, a change in exchange rate / interest rates, a reversal of migration of the past few years (lets face it - a lot of people are just economic migrants and as soon as the Australian economy picks up again New Zealanders will return to Aussie), migrants realise that New Zealand is not the land of milk and honey, migrants get their New Zealand passport and skip to Australia ( a back door way of getting into Australia) or something else that I haven't thought of.

All we need is a collapse in the global credit supply. If you can't get a mortgage you can hardly buy a house. We're not a nation who saves very much.

Mate, the entire monetary/banking system is a conspiracy! Who the hell do you think invented Fractional Reserve Banking? Let me highlight it for you, It wasn't a government!

When vested interests in power all collaborate to achieve an outcome for their OWN benefit, what else can you call it but a 'conspiracy'. It meets the definition perfectly.

We are not seeing a basic supply vs demand reality. It's being warped to retain what they wanted post 2008 GFC.
Were the Global Bailouts of banks and insurers part of a basic supply vs demand construct? Hell no, they were part of conspiracy to keep the status quo around the globe.

Common taters seem to assume that it's purely a Gubmint issue - ban furriners, build anything anywhere, tax the living daylights outta Them As Wot As Deemed Bad. Essentially, take one or two simple actions, wave the wand, and presto, Nirvana is delivered. Etc., etc.

The issues are much more numerous, intertwined and complex than that. A sampling:

  • The price of land, as the Productivity Commission has long since noted, is wildly distorted by MULs, RUBs and other emissions of Plannerz Feeble Brains.
  • The price distortion is of such long standing as to have become structural. That is: inflated land prices have spread to neighbouring properties, suburbs, localities and cities.
  • If the land price is wrong (ht the much-missed Hugh Pavletich), everything on top is wrong.
  • Gubmint policies to "help the FHB" such as Welcome Home loans have instead served to cement in a price floor, thus institutionalising the price ratchet effect.
  • Building material prices are in the steel vice-grip of a cosy duopoly, so materials alone are much more expensive than they need be. A quick Google of Bunnings, the and the, should serve to convince the unbelievers.
  • The LBP mania rules out self-builds, sweat-equity and other self-help possibilities. Time was when anyone could build their own. Norman Kirk did. No more.
  • TLA 'contributions' can be measured at close to $100K per dwelling, for all manner of things, on a take-it-or-leave-it basis. A natural monopoly, completely unregulated...
  • Elfin Safety adds $5-10K layers at every turn: for such innovations as scaff, fall protection, site meetings, inspections, certifications of scaff and electrical cords and tools, Most completely unknown (and, arguably unnecessary) 15 years ago. Ask older tradies (who have, sensibly, quietly faded into the shadows or gone under the radar)
  • Building inspections and other regulation is mainly concerned with liability avoidance, not actual structural assessment. Witness the mountain of Producer Statements for every bracket, beam, bolt, fitting and component. Easy to count and file to get the ticks, very little relationship to (say) the performance of the structure in a severe earthquake. There's little to no dynamic testing (e.g. exerting a 0.5 tonne upwards force on a purlin to test security in a gale or pushing a corner of a building sideways with a known pressure) All cost, close to zero benefit.
  • Few builders exceed 100 units per year, and most is done outside, in the weather, with close to zero QC, by indifferently skilled hammer hands (drug-tested, if you're lucky). Contrast that to the build regime for boats, aircraft, caravans and portable structures: indoors, tight QC, tight tolerances, done in volume and serial-numbered/guaranteed. Spot the difference? Check a local build, and count the weeks the frame stands outside, unprotected, in the rain...

I've touched on only a few of the major aspects of the whole shemozzle, but perhaps y'all get some idea of why Gubmints are so reluctant to grapple hard with this tar-baby......

Having just built I relate to the building trade inefficiencies you describe. The wastage of time and money from monopoly supply chains, contractor inefficiencies and bureaucracy is eye opening. On the house price frenzy – the voice of the people has now reached a level where further action – supply or demand side or both – is politically unavoidable. Even it is further half hearted gestures, twinges of unease must be starting to tug at even the dimmest speculator. It only takes one flash of a kingie to startle bait fish into panicked flight. Speaking of startling, Robertson has put the election losing issue of CGT back on the table. He must believe house prices will continue to rise for another 18 months at least.

I oversaw a Time and Materials building project last winter and the job went quite well.
Exterior works, not the house itsself, about 800 manhours I guess.
If it was overbudget I knew why, groundwater and we changed the design on the fly.
Only obvious problem was coordinating the concrete truck.
So the message may be the problems are building compliance.
Across the road was a new house build and there seemed to be big gaps in progress.

Have you ever noticed that we never see any subdivision developers being interviewed, or publishing their opinions on why not enough subdivisions are being developed - they are the people at the coal-face - MIA

I would rather have their views any day

In my opinion, anyone who lays the blame on supply issues without addresing demand, is either being deliberately misleading, or is being foolish.

Seriously, how do these guys sleep straight at night!?

At least have the decency to acknowledge that BOTH supply and demand can have a major impact on prices, and therefore the most effective way to bring down property prices would be to address both of these aspects in tandem.

In my opinion, anyone who lays the blame on supply issues without addressing demand, is either being deliberately misleading, or is being foolish.

I agree your sentiment Camel's back but I've edited this slightly to what I think reflects the truth of the matter.

Hi Jason - a few questions for you.

In the last 12 months, Auckland house prices rose by 15% while Auckland rents rose by 4.6%. Assuming the sole issue is a lack of supply of housing for people to live in, how do you account for this?

You don't seem to have drawn any distinction between the demand for housing as an investment, and the demand for housing to live in. Do you think this difference is relevant to how effective "increasing supply" would be in improving affordability? What kind of statistics do you have available to support your view?

Especially if you consider that the supply they're talking about making available is out of reach of those who it really should be made available for/to...(FHB). Until the point that the market reverses, investors will continue to speculate on capital gains and outbid any FHB at auctions for new property that comes on the what's the point and all the fuss about in generating additional supply if it's going to those who already own?

It's both supply and demand. Google "barfoot top sales agents" if you don't believe me.
This is simply biased as it comes from the mouth of a globalist institution. The NZ initiative have previously slipped up and let the cat out of the bag:

"resulting in sellers being forced to accept a lower bid for their land than they otherwise would have" - NZ Initiatives Janesa Jeram last year

What a revolting article.

No, it's not all about supply... It about supply and demand of multiple factors

1) Supply of people - namely record immigration, 50% of whom do not leave Auckland creating excess demand outstripping supply and pushing prices higher for renters and prospective home owners
2) Supply of money - Cheap interest rates and relaxed lending standards mean higher mortgages are obtained in good times and higher leverage ratios not only push up the cost of houses, but also the systemic risk to the financial system as noted by the RBNZ
You could also include foreign investment in this category as without financing - house price growth is limited
3) Lack of supply of new houses... say no more... other than it will be 2 years before any new supply comes online
4) Inherent conflict of interest between valuers and investors drawing equity from existing homes to buy more houses with loans - while getting paid by the people who want high valuations - i.e. GFC credit rating agencies...

In order to rebalance the housing crisis you need to tackle multiple pillars, by
a) Reducing demand for housing (Restrict immigration...)
b) Limiting financing to potential borrowers on an income basis including investors using borrowed equity instead of cash deposits like first home buyers and putting restrictions on foreign capital speculation in NZ
c) Increase the supply of new housing projects which will have a 2 year lag to come online anyway...
d) Increase regulation on home valuers who have an inherent conflict of interest being paid for valuations from the people they are doing the valuations for

The most effective short term solutions will be limiting immigration and financing, and regulating valuers they will be the quickest and cheapest solutions to implement within a relatively short period of time

Anything else is only a temporary band aid and will not work long term

The crux of the 'problem' and why it won't be solved by humans.

Of course demand matters but what Jason is saying about supply is really about how responsive the supply is. There is enough land, both up and out, and any council that had their shit together, or any developer that was allowed too could easily meet that demand with infrastructure etc, as other jurisdictions that DO have their shit together can.

When demand for cars rises, they just produce more, the prices don't go up, because in a truly competitive market, the reason in part that the demand existed was because the price was affordable. The only way the price could go up, is if the car producer had a monopoly and therefore could restrict the supply to be less than the demand -just like we do in housing.

Yes there is a lag time between demand and supply in housing and as others pointed out, if demand was controlled to be consistent, then it would be relatively easy with a little bit of foresight to match supply to that demand. But our system is so dysfunctional, that even if we did that, council and other vested interests would just dial back supply so demand was always greater.

That is why the RUB has to be removed and by default any council control to drip feed supply, AND council has to lose their monopoly to supply infrastructure.

NZ Initiative == National Apologists. Yawn.

Maybe these articles should have a tea towel flag at the top to clearly label their content.

Immigration policy is a disaster.
Non resident property sales is a disaster.
Stop the population growth and house prices will come back to fair value.
once the market starts to correct the investors will race for the back door and want to get there money out.
Property prices will drop when we stop the immigration.
We will still have a huge infrastructure bill as we have already grown the population by the size of three Whangarrei cities in 3 years. That is our burden that will take years of taxpayer investment to build infrastructure for all these people. Thats another 200,000 people that the countries productivity has to be shared with.
Stop the immigration now!! Population growth is not sustainable.

Hi Smith. We don't need immigrants in the provinces either. All the provinces have unemployment. Us provincials already know how to drive taxis, cook fast food, we even still know how to run a corner dairy. Immigrants just compete for the same jobs we already do. Unless you can bring us a Dot Com character who actually earns foreign currency and then spends it.

Don't think Valuers are the problem.They use the rear view mirror. Just sold a section at $900K. Buyers Valuer said only worth $725k. Customer wanted it for tomorrow-not today. With limited stock the customer must pay. Open up the RUB and prices would respond. Supply/Demand seriously out of balance. The same was true in 2009, but in the inverse direction.

I think he's right. Do something to end speculation! But his suggestion to release a toss load of land is wrong.

There is an alternative. The council or Crown own all the land, and lease it for a rate that allows a reasonable return if used productively. Land, along with water and minerals and radiowaves and much more, are part of the commons and should be held collectively. Not used for speculation.

Hi, Supply is important but not the only solution. See article in nz herald

Also check with any extate agent or anyone related to housing industry and you wil know the truth.

Alternatively if government is serious to get the correct data, which is possible as even the agency while releasing the data mentioned that is faulty n it is not a big deal for the agency to contact / email to buyer n get correct information but the govt will not do as is in their interest to delay as nect report will be after 6 months.

The article published in nz herald is the view of not most but all newzealanders.

Time for government to stop creating a smoke screen as now all nz knows what tge reality is and does not need data to support, credibality of which is a question mark