While the high-end of town will be chuffed with the Government's torpedoing of Capital Gains Tax, the less well-off won't be. A successful revamp of Labour's flagship housing policies could help a lot, says David Hargreaves

While the high-end of town will be chuffed with the Government's torpedoing of Capital Gains Tax, the less well-off won't be. A successful revamp of Labour's flagship housing policies could help a lot, says David Hargreaves

By David Hargreaves

Phil Twyford's not exactly disappeared, but he hasn't been as high-profile as before recently either.

With all the attention being given to the Tax Working Group and the recommendation for a comprehensive Capital Gains Tax, perhaps that's not so surprising.

But of course remember that Housing and Urban Development Minister Twyford was forced to admit in January that the KiwiBuild housing programme, targeting 100,000 new affordable homes over 10 years would not make it's target for the June 2019 year - which was just 1000 homes. Nowhere near, seemingly.

With the Government being forced to concede that it couldn't find 'consensus' over implementation of a Capital Gains Tax there's now an obvious void in terms of some 'feelgood' news for those who aren't making the kinds of capital gains that would have been taxed. Yep, people who had seen a path towards equality through a Capital Gains Tax would be looking for this Government to provide something to cheer them up as we head towards election year next year.

Housing reboot

So, this would obviously be a good time for Twyford to re-emerge with a suitably suited and rebooted housing plan.

One of Twyford's most recent major speeches on housing was to the think tank/lobby group NZ Initiative.  Now it may have been in part a case of the Minister knowing his audience and being therefore cognisant of the NZ Initiative's past criticism of KiwiBuild. Be he gave a broad policy speech that certainly impressed the Initiative.  

Taken as read that speech might suggest that even if the Government's not about to dispose of KiwiBuild as a policy as such (and I wonder if maybe it is), it does want to broaden the focus.

I have argued previously that the Government should go "all in" on KiwiBuild and maybe double or more the amount of money committed for it (currently $2 billion).

But clearly that ain't going to happen because the Government remains committed to its spending cap targets. 

If we want to talk about 'targets' per se then KiwiBuild has clearly been problematic.

Firstly, everybody was fixating on the targets the Government had set for the number of houses built and measuring the policy purely on that basis. And secondly, KiwiBuild is itself an easy target for criticism, in the way that a moving feast such as the Provincial Growth Fund - with money flying in all directions and hard to track - isn't perhaps to the same extent. Or at least it is harder to pin criticism on it.

So, KiwiBuild is undoubtedly set to go more into the background. But will it be ditched altogether?

Build now, worry about detail later...

It's probably a simplification of what went on, but it appears the Government's original idea was to just go ahead and get loads of houses built and then worry about the various problems around planning, infrastructure, RMA, etc, later.

But the catch 22 has been that the Government's struggled to get developers on board to develop low cost housing when it's such a pain in the neck for developers to get houses built that they'd rather build higher value ones thank you.

Therefore we come back to the apparently broadened approach, where some of the things Twyford talked about much earlier, such as freeing up urban boundaries and funding infrastructure etc come to the fore.

The good thing from the Government's perspective is that the housing market has turned more in its favour, no doubt assisted in some respect by things the Government has actually done such as the foreign buyers legislation and the extension of the Bright Line test from the two year period introduced by National to five years, meaning those that 'flick' properties could be faced with tax on the profits. The Capital Gains Tax that dare not speak its name.

Other things have fallen into place separate from the Government though.

The Reserve Bank's super-tightening of mortgage rules for investors in July 2016 appears to have opened the door more for first home buyers. And they have been getting an increasing share of the mortgage money - albeit often in eye-wateringly large-sized mortgages. The further good news there though is that even though the sheer volumes of loan money to buy a house can be truly daunting these days (particularly in Auckland), the fact that interest rates have stayed low and are now going even lower with potentially more ahead, means that people can at least afford to borrow these big sums. Even if it is keep-you-awake-at-night stuff.

And with the RBNZ very possibly going to cut the Official Cash Rate as soon as next month, there's little short-term likelihood of those interest rates spiking up dangerously.

This is all good for the Government because it does give it time. With young people not appearing to be as desperately locked out of the market as they seemed to be about three years ago, the Government does have more time to work on affordability.

It does mean that some of these curly questions around things like urban boundaries, local authority planning hurdles, the RMA, the funding for infrastructure in new developments, can be now tackled without the concern that as time goes on house prices are getting more and more out of sight for the people not on the 'housing ladder'.

Good time for change

There is therefore now a chance to get some fundamental change that simply makes housing development easier. And if that can be achieved, then obviously the number of houses that can be built can be ramped up.

While I would prefer therefore to see the Government give KiwiBuild a realistic budget (because it hasn't got that now) and allow the Government itself to go ahead and build taxpayer-backed houses on large scale, if we accept that's not going to happen, the next best thing would be some fundamental reform. So, that we are at least set up better for the future.

Now would be a very good time for the Government to focus on this and get some runs on the board.

Taking Capital Gains Tax off the table has removed a contentious election issue. But the traditional labour voters would want to see that replaced with something that gives them comfort.

Until next time...

That's the political perspective. But from the perspective of the New Zealand good, we've got to fix the housing shortages. If large numbers of people are left off the 'housing ladder' at a time when prices aren't rapidly escalating well, they'll have no chance at all the next time the housing market takes off.

And there could be bad social ramifications for this country if perhaps hundreds of thousands of younger people are left feeling marginalised.

The CGT is dead. Bring on the houses.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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51 Comments

A rebooted housing plan, top of my wish list for the easter bunny:
- the long overdue RMA reform to better balance sustainability and development
- faster consenting processes, privatise it
- subsidized land ownership schemes
- reform of the tenancies act to provide long term fixed tenancy with fixed rent reviews
- kiwibuild focus on affordable apartment developments. Mass build 7 story spacious 2 and 3 bed apartments with retail at street level built to last 100 years, not pretty but effective
- a giant easter egg that can house us all

Above all of that, with what has happened with housing over the last decade or so, we need massive numbers of social houses, as there are now far too many people who will never be able to either buy or rent on the open market, Yet another example of privatizing the gains and socializing the losses.

Build large scale social housing for the retired. That will free up houses for families and give the retired a community - loneliness is the biggest health threat. Commercial retirement villages are great but too expensive for most people.

It will free up houses but I doubt it would make them affordable.

Affordabilty would depend on quantity. Even one would be an improvement in housing efficiency.

Excellent idea. Government should look into this direction

I hope you aren't suggesting the govt subsidise new housing for those elderly that already own existing homes in suburbia? If you mean build compact modern durable low maintainence housing, and straight swap for their existing suburban house then we can talk. If that deal isn't attractive they can pay their own way onto one of those commercial retirement villages.

+1,

And, manage the immigration rate down to something sustainable. (We'll never meet climate change targets either along with the housing crisis)

Yes, the government needs to focus kiwibuild on providing social housing needs as this is where there is no profit for the private sector, and the private sector cant build enough other houses fast enough to massively increase the supply to push down all housing prices.

Plus, give the ComCom the power to enforce competition in the building supplies market.

Looks like the government is going to bulk authorise prefab housing as well :).
This is stunning, why cant we do it with housing
https://www.businessinsider.com/worlds-tallest-modular-hotel-new-york-ci...

“But the catch 22 has been that the Government's struggled to get developers on board to develop low cost housing when it's such a pain in the neck for developers to get houses built that they'd rather build higher value ones thank you.”

That’s a massive part of it right there. How about they look at correcting this before they just through more money at kiwibuild. Fix the causes not the symptoms.

It shouldn't be hard to fix. First stop treating developers as the enemy. Guarantee a purchase for their social housing developments and assist with financing. Consent fees paid when house is complete.

“But the catch 22 has been that the Government's struggled to get developers on board to develop low cost housing when it's such a pain in the neck for developers to get houses built that they'd rather build higher value ones thank you.”. Not true. Getting Kiwibuild to sign up to an actual real project of affordable quality houses in central locations appears to be very difficult. Govt departments seem to find it very hard and time consuming to make decisions.

14
up

The government needs to make good on its promises to severely curtail the importation of people as well.

Does labor has any plans.

Check with Winston Peter.

As far next election comes, many Labour supporters may have switched to Green party.

Well they are supposed to be consulting on some RMA changes by mid year.
I understand they may be quite underwhelming.

They won't change the RMA because the new Urban Housing Authority is set up to go around it. No wading through planning laws for them!

Which is a shame, because if they did, private developers would solve the problem for them.

Credit where credit is due the government has brought in the FBB and extended the brightline test. Meaningful initiatives.

Correct BUT are now getting cold feet.

Picking from the subtle messages from grant robertsons interview, there might be quite a bit in the budget? Especially with the let down on cgt, they would want to counter the negative vibe..

The only houses the Government should be building are state houses for long-term rent by all who want them. Shamubeel Eaqub has argued along similar lines:
https://www.stuff.co.nz/business/110180319/kiwibuild-should-built-more-r...

Yep, get the state house supply up, get people out of taxpayer funded emergency accommodation, then everybody receiving accommodation supplements into state owned housing and let the market sort out what happens to the shitboxes that no sane person would rent with their own money.

Been to a state housing area recently? Predictably the government make a terrible landlord. They have left crappy 2 bed houses sitting on large lots in areas with good accessibility. They fill them with people who have no intent on working forcing those that bother to work to live further out. Now that they have finally decided to develop it takes ages to get the tenants out because of the political whipping that comes with it. It’s too little and too late.
Why not do the opposite- sell all state houses to the more efficient private sector with a caveat that they must develop within 5 years.

Yes, live just down the road from a state housing area that is being redeveloped. The houses that are going up look just fine.

And no, selling state housing to private ownership is part of why we are in this mess. There are always going to be people that need state housing, and if the state doesn't own it then the state has to pay private owners for the use of their houses one way or another.. and the private owners just crank up the rates knowing the govt will always keep paying. so no, lets not privatise the profits and lump the taxpayer with the costs of profits for the private sector on top of actual costs.

The government isn't a typical landlord, they don't get the option of turning away the shitheads.

Yes I live near a state housing area too (maybe the same one) and yes they doing some great work developing them. But the problem is that they did nothing for the last 60 years since they were built. Meanwhile most of the private home owners in the area with big sections subdivided years ago. It’s kind of like if the government provided mobile telecommunications - we would still be on 2G
With current rental yields I imagine it actually makes sense to sell.

Indeed, they were useless for the last 20 years, good old neo-liberal policy. but privatising this huge public asset then renting it back off private owners is a really stupid move. According to some we are at the limits of building construction capacity as it is, so selling to private owners won't fix the problem any faster. Stop looking at mistakes of the past and look at what is happening today and in the future.

I guess the question is whether this is just a mistake of the past or if it is a structural problem that governments just can’t produce products or services.
Likewise the government could try producing bread, milk, cigarettes, sky TV, etc so they don’t have to give their money to private companies - but that would be a bad idea too.

Yet if you look further in the past, the govt did produce the very houses you are talking about selling... ergo, its not an intrinsic structural problem.

It's quite simple, really.
The government needs to borrow at low rates and build a lot more housing.
What's stopping them?

Its not simple really or it would already be happening. Unfortunately it takes more than a signature on a bit of paper to make it happen, somebody has to actually BUILD the houses. If there is no profit in it, the risk is too high or you cannot find any builders its not going to happen. The free market fixes itself, if there was a low cost housing shortage and it was a viable option to build it would already be happening. Obviously there are multiple problems in the market preventing this to occur naturally.

Whatever new building takes place, QUALITY is paramount.

There has been far too much shoddy construction in NZ over the last 35 years - cheap materials and slap-dash workmanship. The worst of it can be seen in leaky homes - but it doesn't end there.

I'm for old wooden houses with "good bones" which can be refurbished to a good standard - and in a cost-effective way. (I simply don't trust a lot of new buildings.)

One other thing: local authorities need to support new construction - not hamper and obstruct it. This means increasing their efficiency and not exploiting their monopoly power in charging fees for building consents etc.

Overall, local authorities have a very bad reputation in our communities. They need to swiftly address this issue. Becoming client-focussed would be a good starting point.

TTP

Agree. And you know with regard to planning the way they can become more customer friendly without losing their objectivity - change the planning system!
Do what some cities in California are now doing - take discretion out of the planning process. Some cities, following state-level direction, now have plans which have a whole lot of objective standards to control impacts on neighbours and get good urban design outcomes. Provided you meet those standards, you don't need resource consent. You just need a quick audit.

At the moment, customer service at councils in NZ is compromised because their customers are not only developers, but also neighbours who might be affected.

Go with the California approach, and it's 'problem solved' because the customer effectively just becomes the developer. And everyone knows where they stand, getting away from these grey discretionary processes.

Apparently they did similar things in England - the idea is that you can develop unless there is a good reason not to.

i.e. the reverse of how it used to be: Take 3 years to convince the local council that you could build something that was sensible the whole time.

We already have that - if you fit into the unitary plan rules the council will say yes, otherwise you need resource consent.

At least conceptually, it IS simple. It's only the government's stubborn-ness around its debt levels that are stopping it.
If the government commits to a 10 year programme, with the certainty provided the private sector will increase its capacity to deliver. And we can get more prefabrication happening too.
It's not one or the other, government or private. I agree a range of things need to be done to free up the private sector. BUT....in a small, sometimes volatile country/economy, there's nothing like big government programmes to give businesses confidence in the pipeline ahead.

Central govt commits to 10 years of building, local govt commits to 10year of soaking central govt with more permit fees etc instead of doing anything about become a lean agile and permissive organisation.

Hence the Urban Housing Authority not having to deal with councils. Shows where the government thinks the problem is right?

Its one of several problems.. but yes!

The councils are effectively controlled by the RMA and the building act. I actually think the council would prefer to have nothing to do with building (this could and should be privatised) and with planning they are stuck between a rock and a hard place thanks to very loud NIMBYs.
I think the government like to have the council take all the bad rap even though the legislation is the real problem.

Perhaps speaking to my lack of imagination deploying the handbrake on immigration is the only quick-fix I can see between supply and demand. RMA reform and the consenting process is too complex to happen within the term of this government, the building industry is just scaling and not innovating...Much as to say the that not implementing a CGT will likely now put pressure on the government for immediate reform in other areas.

Well permanent residency is on its way down. From about 50k to just over 35k - for some reason our Labour govt doesn't want to boast about this - probably doesn't suit their image.
However work visas are still high volume but that could be fixed by setting reasonable prices:
Essential Skills Work Visa (online) $495
Fee Paying Student Visa (online) $275
Just add a few thousand to the cost and then employ some more labour inspectors. Maybe the desperate will pay see https://www.stuff.co.nz/business/112128450/bakery-owner-to-pay-back-3380... but it will cut demand.
Final solution: persuade poor Aucklanders who can't afford our housing to move to Oz.

This is complicated because we've made it complicated. Firstly there's too much greed within the construction industry - look at the huge cost of wood for example, & we grow millions of trees for goodness sake. Two, way too much paperwork - too much time, effort & money dealing with councils who a) don't really know what they're doing & b) why they have to do it this way (a mix of over-regulation & incompetence) & then c) charging us fortune for the privilege. Too much immigration - we don't need tens of thousands of foreigners every year. Sure, our educated birth rate is abysmal & our brightest head off-shore year after year, while back at the ranch, the unambitious & the leftovers try to hold the fort. The real problem here is that the young people (Kiwi born) do not wish to work hard anymore. And we have almost 300,000 people not working because they're young & pregnant, young & lazy, young & drugged up or generally useless - with almost two-thirds of those under 30. Some of these people don't deserve houses quite frankly. I'd have most of them doing stints in the army to try & a) keep educating them & b) making them more responsible for their own decision making. Then they can apply to have a house.

They're sitting around and getting pregnant and taking drugs because the jobs have gone from the regions. 30 years of that reduces a population to uselessness.

Will take a long time to fix too, can't be done overnight.

A lot of the comment so far assumes that the dopey TLA's will still be part of the mix, and need to change their evil ways. But there's another route possible, hinted at in the UDA concept.

That is, simply, that a UDA is also the BCA: thus removing at one stroke the TLA's influence, injection of time=munny, monopoly position, and general cluelessness. If the 'UDA' is then extended to encompass 'anything built by the Gubmint', then the thing becomes possible NZ-wide. The Gubmint is big enough to self-insure, so the lawfare inherent in TLA and builder cock-ups and their aftermath is also sidelined. And there is surely enough scale to what needs to be done by way of social housing, to gain some economies of scale in the process. Add to this supply side element, the land-banking trust-busting, and some small tweaks to the RMA, like, f'rinstance, declaring all RUB's null and void by regulation - which can, as we've seen with Shooty Things, be carried out by lunchtime tomorrow - and we might have ourselves some progress, runs on the board, insert yer fave cliche.

Of course, having never even bothered to spruik the case for the CGT policy they were elected on to deliver, it remains to be seen whether this sorry crew can discover some vertebrae and do even some of the above.

But hey, Easter's all about Hope......

Waymad, yes there are questions around spine....
Let's see if abolishing the RUB is one of the things the government introduces middle of the year. I doubt it cos while PT can talk a good talk to the coverted ( NZ Initiative) he faces WWIII with Auckland Council

And organisations like Generation Zero - a bunch of naive young people who think we can just build lots and lots of apartments near railway stations. And of course they'll be built to really really high standards and really really cheap to buy.

There really isn't a way to solve the housing issues without admitting we have gone too far with neoliberal policy settings and backing away from them steadily and moving toward more socially responsible policy settings. The main reason house prices have increased so much as with other assetts is due to loss of secure and liveable income opportunities in the name of flexible low cost workforces. Relacing secure wage and salary income are income derived from wealth creating asset bubbles but this gives rise to a haves and have not society which is very unfair and dangerous in the longterm.

Should be interesting times ahead. RBNZ puts interest rates down to stop house prices declining. Result one, house prices shoot up because they are "more affordable". (Actually it is only the interest that is made more affordable, the house is made more expensive in terms of hours of labour to actually pay off the loan and own the house.) Result two, currency goes down and petrol goes up, causing outrage and demands for the government to do something. The government then does something to regulate the oil companies, thus causing them to be less efficient and putting the price of petrol up.

Is there a pattern here, I wonder?

What is government the answer to, exactly? I see there is a role for government as rule makers, at least to the extent they can do a good job of rule making. They just don't seem to want to do that, they seem to be a bunch of meddlers and wannabe industrialists and town planners. So, if they aren't good at making rules and if they are completely hopeless town planners and industrialists, what do we do with them?

This seems to be a worldwide problem, government incompetence. Frustration abounds, demonstrations, bombings, shootings, election of fools and incompetents, strikes, devaluation, currency wars, trade wars, bloodletting, all seem to be on the rise.

Many good points raised in comments below but I've often thought surely as a one time exemption for a FHB on a new build what about the Government not taking the GST !

On several occasions I've talked to economists, government officials and ministers about this - because it could make a meaningful difference.
For example, a 3 bedroom townhouse normally selling for 740K could sell for within 650K (Kiwibuild price point) if it was exempt from GST.

Unfortunately, those people I have talked to are usually very dogmatic in their opposition to this. You see, we have a very simple tax system, with few exemptions, and the 'purity' of that system is more important than outcomes on the ground...

One economist I spoke to was very supportive, being able to put dogma and neo-liberalism to one side.

But yes, totally agree!

They are right, a simple straightforward tax system is a good thing. Perhaps simplifiy the planning/resource consent etc to be as straightforward as the GST rules and watch housing spring up to meet the needs instead of people waiting 6-18months to fight their way through planning and consents

It's a dogmatic world view. Yes, simplicity is generally better than complexity, but what if a 'little' bit more complexity has beneficial social and economic outcomes?
Every policy decision has pros and cons.
Most of the rest of the world is happy to have exemptions, if there are good public policy reasons for them.
But we are diffrunt.

Auckland Council want a share of the GST spent in the Auckland region.

They've spent and they've spent and they've spent. Now up against debt limits, they apparently haven't thought about reducing spending, no, they want even more money to waste.