A new report by a heavy-hitting group of academics and economists says Auckland housing must be affordable if the city is to become a globally competitive hub for innovation.
And the report again raises the idea of a land tax, saying land taxes "are both efficient and progressive, and are more effective than other forms of wealth tax".
A lack of policy coordination across and between the different arms of central and local government has "precipitated the housing affordability crisis in Auckland that is now quickly spreading to other cities and regions", according to the report.
The report, New Zealand’s economic future: COVID-19 as a catalyst for innovation was produced by Koi Tū: The Centre for Informed Futures, a think tank and research centre at the University of Auckland.
The authors were Ryan Greenaway-McGrevy, Director of the Centre for Applied Research in Economics (CARE) at the University of Auckland, Tim Maloney, the Head of the School of Social Sciences and Public Policy at AUT and the Chief Economist at the Ministry of Social Development, Arthur Grimes, the Chair of Wellbeing and Public Policy at Victoria University of Wellington’s School of Government and a Senior Fellow at Motu Research, Sir Peter Gluckman, Director of Koi Tū: The Centre for Informed Futures and Anne Bardsley, Deputy Director of Koi Tū: The Centre for Informed Futures.
They say that New Zealand needs to refresh many aspects of its economic strategy including giving greater focus to innovation and the knowledge economy. And they call for investment in Auckland as an innovation hub – together with building off the concentrated expertise in other cities, boosting the country’s national research and development (R&D) spend, and encouraging multinational corporations to invest in New Zealand R&D as part of "a cohesive strategy to reset our economic future in the wake of Covid-19".
The report says Covid-19 has presented a unique opportunity to develop comprehensive economic policies that address research and innovation, the role of cities, housing and taxation, and demographic and workforce issues.
“It is time for fresh thinking about how we do business. Given our geographical isolation and the need to reduce the impact of extractive industries, our most important asset will be knowledge applied in all sectors, including digital and agricultural sectors. Building this asset will require new strategies, and a significant change in direction and focus for the New Zealand economy,” the report says.
In describing the need to make Auckland a globally competitive hub for innovation, the report says New Zealand has long been "embedded" in the global economy, relying on overseas markets not only for our products, but for the capital and labour required to develop our economy.
"The shift towards cities as the centrepiece of the modern economy requires a change in the way that we understand how countries compete in global markets. In order for New Zealand to compete to retain and attract people and capital, Auckland must be able to compete with the likes of Melbourne, Sydney, Singapore and London.
"The policy changes needed will in turn have spill-over benefits to other cities and regions across New Zealand. Regional development cannot be considered independently of urban policy. Significant changes need to occur to our urban geography, educational system, cultural and social amenities, fiscal and tax policies in order to create the conditions for knowledge-based clusters to grow."
'A fundamental first step'
In the report the efficiencies derived from firms and households locating close together are referred to as "agglomeration effects". It says agglomeration benefits include deeper and wider labour markets for employees and firms, greater specialisation in the supply of inputs to production, and knowledge spillovers through local networks.
"High house prices prevent us from benefiting from agglomeration efficiencies. Restoring housing affordability will be a fundamental first step towards creating the foundation for agglomeration economies to flourish."
The report's authors say Auckland "must be" affordable while preserving and enhancing the amenities that make it attractive to global and local firms and talent.
"It will be challenging to deliver this combination of attributes without determined policy effort and coordination."
They say policy settings at the central and local government levels have led to burgeoning housing demand while holding back supply - resulting in skyrocketing house prices.
"Census data reveal that while the population of Auckland increased by 11% between 2013 and 2018, the number of occupied dwellings increased by only 5.7%.
"The lack of policy coordination across and between the different arms of central and local government has precipitated the housing affordability crisis in Auckland that is now quickly spreading to other cities and regions."
'All options on the table'
Housing supply must respond to demand in a manner that preserves and enhances the natural amenities of Auckland and expands the mix of dwellings available to households and families, the report's authors say.
"All options need to be on the table: detached housing, terraced housing and apartments. Thoughtful urban planning will be required to ensure that Auckland remains an attractive city to people from a variety of backgrounds and a variety of interests, requiring coordination and cooperation between economists, urban planners, civil and transportation engineers."
The say unaffordable housing "also erects a wall between Auckland and the rest of the country" by denying households from the regions the opportunity to seek employment in the main centres.
"In order to create a knowledge hub in Auckland, we will need to draw, in part, on our own home-grown talent from around the country, necessitating access to affordable housing in Auckland for people moving from the regions."
They note that recent changes made under the Auckland Unitary Plan have led to a partial relaxation of land use regulations to allow private development to build both up and out.
"The impacts of these changes must be closely monitored in order to assess whether additional legislative and regulatory changes are necessary.
"This must include significant reform now that the Resource Management Act (RMA) is to be replaced, to enhance spatial planning that can enable a sizeable expansion in Auckland’s (and other cities’) housing stock. Equity considerations also call for a material increase in the stock of social housing or increased subsidies for alternate approaches."
Land tax
Policies to support agglomeration must be funded, and funded fairly, while maintaining an incentive to maximise agglomeration efficiencies, report says.
"For example, a land tax levied on the value of unimproved land would help to achieve these goals.
"Many of the benefits of agglomeration are capitalised into the value of land. Proximity to the city matters – and proximate land is scarce. Landowners in Auckland are poised to reap substantial gains under policies that cultivate high tech clusters, while it is the workers, entrepreneurs and investors that will supply the labour, energy and appetite for risk that will make it all happen. A land tax coupled with a reduction in income taxes rewards work while reducing the rewards from land banking and speculation."
Land taxes are both efficient and progressive, and are more effective than other forms of wealth tax, the report authors say.
"They are efficient because land is immobile and fixed: landowners cannot respond to a land tax by producing less of it or by moving their land to jurisdictions where taxes are more favourable.
"They are progressive in that landowners tend to be wealthy, and because land is fixed and immobile, a land tax presents few opportunities for landowners to pass on tax incidence to others. In addition, because they are levied on the unimproved values, land taxes also incentivise development and intensification, further increasing agglomeration.
"For these and related reasons, the 2010 Tax Working Group recommended a land tax to the then government. However, their advice was not acted upon."
Infrastructure will be required
The increased population that underpins 'agglomeration' will require infrastructure such as roads, sewerage and water supply, raising problems of how such infrastructure is planned and funded, the report says.
"The short-termism of much of our urban planning is increasingly obvious with horizontal infrastructure in a relatively parlous state.
"The need for dependable, quality water supplies has been highlighted repeatedly both by experience and in official reports, but little has been done to rectify deficiencies in part due to funding and planning constraints. A range of options can be explored to fund infrastructure upgrades and extensions, potentially including betterment taxes on areas that benefit most from new infrastructure investments."
The report authors say that building both up and out to enable population growth can potentially entail significant congestion costs, undermining the appeal of working in the city and "exacerbating our carbon footprint".
"Densely populated cities that have ample public transport tend to have lower carbon emissions per capita.
"To get the most out of our cities we need to make significant improvements in public transportation to rapidly move people living in suburbs and exurbs [areas beyond the suburbs, such as lifestyle blocks] into and out of the places where the jobs are located.
"In general, these rapid transit options need to be grade separated (i.e., rail and busways that are separated from roads) to ensure that the modes are not competing with cars on the roads.
"Public transportation should also provide rapid transit options to families that wish to locate in detached housing further from the city centre, including the exurbs of Auckland and the townships along existing rail lines to Hamilton and Whangarei."
Migration and workforce
Turning to migration and workforce policy, the report says the closing of NZ's borders has "shone a light" on how both in- and out- migration operate as a "safety valve" in our labour market, mitigating the impact of economic shocks on unemployment rates, job vacancies, wages and prices.
"But the broader, long-term implications of international labour mobility on our labour market need to be better understood," it says.
"A clear population strategy is needed that coordinates policy across demographic change, workforce, immigration, environment, housing and urban domains, and is protected from short-term political vicissitudes."
Policies to support agglomeration and innovation rely on attracting high-skilled workers to our shores, the report authors say.
"But immigration policy must be coordinated with housing and urban policies to ensure that we have the requisite dwelling stock and utility infrastructure to support increases in population.
"It is also critical that a population strategy coordinates with environmental policy in order to accommodate a growing population in a sustainable manner."
The report says over the longer term these issues cannot be separated from the issues arising from the impact of technology on the future of work, the predictable demographic changes ahead, and the unresolved issue over a longer-lived population with a retirement age that is is increasingly unrealistic for many.
"We need a much better understanding of the drivers of ongoing structural change in the labour market, which pre-dated COVID-19 and will persist beyond the pandemic. COVID-19 has likely accelerated the impact of some of these factors, while decelerating others."
126 Comments
A land tax is also a great out for the government because there's no incentive to stop adding more and more people regardless of whether the city can actually handle it. It just means more and more money for them as the demand for land pushes prices higher. If you're an Aucklander who want a standalone house, apparently the answer is to move to another district altogether.
Why do we listen to these people?
Because they're clever. And we should listen to clever people. But let's be realistic, making Auckland another San Francisco is a pipe dream. I'm now invested in a tech business started in HCMC but now with people in Eastern Europe and South Africa. We're doing projects globally and it doesn't matter where we are based (the business doesn't need a manufacturing plant). Nobody needs to live in Auckland. Would't add any benefit or advantage.
What's your point? The tech industry has also suffered because of high housing costs in SF. BTW, rents are plummeting in SF at the moment.
My point is that the 'clever people' are probably selling a pipe dream. I've hear it many times about NZ becoming a knowledge / tech hub. I don't believe NZ has the leadership or willpower to even try.
Tech workers have been given permission to work from home full time. So many of them are existing SF for cheaper cost of living elsewhere but keeping their SF level pay packets. But they don't realise that once they validate that THEIR job can be done remotely. It may soon be done remotely by someone in Mumbai or Manila. Or maybe even Auckland. But at a heavy discount to what they have historically been paid. There won't even be the uncomfortable tears in the office or walk of shame. Box in hand from your cubicle. Because they will fire you remotely as well.
I've had experience on both sides of outsourcing to the East (hiring and being replaced by). There's literally hundreds of thousands of tech workers in these places, but the quality of their work is usually poor, and the culture and language divide is palpable. It's no silver bullet, and I'd personally much rather triage an issue or outage with a local team.
Roger Douglas wanted NZ to be the "Switzerland of the South Pacific". that was a pipe dream if ever there was one. These people are too clever by half. If NZ is to prosper we need to work out what if anything we can do better and cheaper than other nations. At the moment the default setting is primary production, especially dairying. If something better and more profitable comes along there will be a pile-in and it will be done to death. It is the kiwi way, unfortunately.
Since when did a tax ever make anything cheaper? Lets think about the practicalities of this. Does it apply to all land, if so developed commercial land becomes more expensive to occupy (tax gets passed onto tenants), rural land gets heavily taxed, Iwi owned assets get taxed. Or does it just apply to residential land, in which case it also applies to all housing stock. If that is the case then there is ongoing land tax to pay, even for those in affordable housing. Therefore the statement "all land owners tend to be wealthy" is an incorrect assumption, its just that some people own more land than others.
Quite right. Any additional costs, no matter what they are, will be passed on to tenants - one way or another.
The answer to the diabolical situation we have created for ourselves is not to add anything, but to subtract.
What do we subtract then? The capacity to buy with debt.
Debt; mortgages at current settings, must substantially only be available for new builds. Existing debt can be maintained at current negligible cost ( % rates) and only issued to selective buyers of any property - ie: single homeowners.
Anyone who wants to buy an investment property - fine. But do it with your own retained earnings, not leveraged phantom 'capital' trapped in past purchases. If you want to realise that phantom capital, then sell, and use the net proceeds in whichever way you choose.
Will that mean turnover will drop as landlords retain what properties they currently have? Sure. But ramping up supply will be the key to that and as that happens, affordability will return.
Answer to all of the above? Easy! Credit Control and Building Supply.
"What do we subtract then? The capacity to buy with debt...must substantially only be available for new builds"
So what of the old person downsizing to a preloved retirement unit using the funds from the sale of their prelived home and needing a surplus for a little cash to see themselves through tough times. Low investment returns you need a microscope to see and less surplus or none at all..
They won't need debt?
Whatever liquidity they release from downsizing, is a 'bonus' at whatever % rate they receive. Because at the moment it earns 0%; it's tied up in the 'value' of the property.
They will have two alternatives: (1) Stay put and use the principal of any savings for living from ( that's what savings are for after all. To be used in tough times) or (2) sell up release capital; add that to their current savings, and start on stage (1).
Allowing them to take on new debt to 'invest' in speculative property, in the hope of capital gains to 'get them through', is compounding the situation they and we are in ( because the aim of the game is Negative Gearing? There won't be a rental return to go to the shops and spend. It will be an annual tax loss?). Only buying a rental property, debt-free, will deliver the rental income that your downsizer wants to spend at Countdown.
To me everything else like RMA, land banking etc is secondary. Been saying for a number of years the price of housing paid for property is set by the availability of money from the banks. Therefore house prices will not drop until banks step back or are forced too.
In Jurisdictions where land supply is allowed to meet demand (ie fewer land policy restrictions), neither high immigration nor low-interest rates have much effect on house prices.
Think of it like this.
Housing is a store of fuel both in a physical and financial sense.
Supply restrictions act as an ignition to rising house prices if there is a shortage of fuel.
High immigration and low-interest rates act as accelerants to the fire, once lit.
Without ignition, you can throw as many accelerants on the fire as you wish, but the fuel won't burn.
"Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, rather than on landlord expenses, preventing landlords from passing LVT to tenants." - https://en.m.wikipedia.org/wiki/Land_value_tax
Also you may have noticed rents continued increasing despite falling interest rates. In other words rents are not intrinsically linked to landlord expenses. It's more to do with supply and demand for tenancy space combined with how much money those looking for rentals make.
The logic is quite simple. Say the government institutes an annual 10k tax on ownership of a Mercedes, what does that do the value of the Mercedes in your garage? Would you pay more than before now there is an additional liability on the asset? This is how a tax makes something cheaper.
There is though a productive benefit for an economy to switch from a property tax, that taxes buildings (capital improvements), to a tax that only targets land value and by the same logic there would be a benefit to switch from taxing labour or enterprise to taxing land.
If you doubt me check out the perverse local council tax on an inner city hotel in Christchurch versus nearby gravel car parks.
https://brendon-harre.medium.com/saving-christchurchs-cbd-dc0ea72d27e
There may well be a productive benefit, but there are also factors such as fairness and affordability. If tax was all about producing a productive benefit we should then tax labour based on it's highest potential. This would mean you tax low income earners and part time works at a higher rate to encourage them to upskill and work harder. But we don't do that because we consider fairness and affordability. Hence a capital improvements tax is fairer as those properties produce more income and can afford to pay more tax.
Good points about the importance of fairness.
When I think about the systemic policy settings for housing, transport and land-use. I try to think of a better system wrt productivity, the environment (sustainability) and inequality (fairness).
I know I have put this link out before on interest.co.nz but I am quite proud of a report I have written that outlines the systemic problems we face with housing and some recommendations for how to move forward,
https://medium.com/land-buildings-identity-and-values/if-not-now-when-f…
We want to incentivise capital improvements, because that increases tenancy and housing supply which reduces rents and house prices. We want to disincentivise inefficient occupation of land. If it's unfair that someone is holding land unproductively and can't afford the LVT, then it's only fair that they sell it to someone who is able to be productive with it. Inefficient occupation of land is why we are struggling to improve productivity.
A very simplistic academic response to a much more complex issue. A few points, most people would disagree that elderly people who have had their land rezoned should be taxed off their land. Secondly a land tax is ongoing, so once the high density land is developed all the new affordable housing stock will be lumped with ongoing land tax (on top of rates) - so yes the value of the land might reduce but the overall cost will not. Like the person with the Mercedes analogy above incorrectly made, yes the value of the car will drop, but the overall long term cost will go up. Tax never reduces cost.
It has to be brief for people to read it. What will reduce are the taxes that are offset by land tax like GST and income taxes. So people will be incentivised further for productivity and trade, rather than simply exclusively occupying a parcel of land. And also interest payments to banks will decrease due to the subsequent decrease in mortgage borrowing against property. So instead of paying a tax to the banks or landlords, we pay a land tax to the government and reduced income taxes and GST. It gets rid of a lot of freeloading.
Land tax also reduces rents. Here's an ELI5 for you. https://np.reddit.com/r/newzealand/comments/6b6qy5/landlords_threaten_r…
So selling land tax as a way of making property cheaper (for first home buyers in particular) isn't really correct then is it. It's simply moving GST and personal taxes onto land. Which still makes my original statement correct - there has never been a tax that makes anything cheaper. It certainly won't solve the housing crisis and a cynical attempt by those in favor of land taxes to push their agenda.
The amount saved between offset income tax, GST and mortgage interest makes far bigger savings than that spent on land tax. Which means that the ongoing costs for productive (those who earn income) landholders is considerably less and combined with significantly lower land values, will make housing far more affordable for people. Unearned capital gains will be significantly reduced, which is a good thing. We need to reward productivity not Monopoly.
In 2010 it was theorised that a 1%LVT would make properties about 15% cheaper, I would hazard a guess it would be more than that now. It's effectively a shift from us paying a tax to private banks instead to the government, reducing our other tax burdens. It really is a silver bullet.
However, the plain fact is that Land Tax has a track record of being successfully used IN New Zealand to break up land banks and get smaller lots of land into the hands of more average Kiwis. It also brings the fairness of recapturing some of the value given to the land by the efforts and growth of society around that land.
Lowering income tax / GST and raising land tax to leaving normal working Kiwis slightly better off in the equation is very much worth looking at in depth.
Sure, cheaper to buy (cost of the car would go down) but more expensive in the long run ( you have to pay $10k per year). Same as land tax. Will no doubt decrease land prices to some extent, but there is an ongoing cost to the purchaser of the land tax. There is simply no example of a tax making anything cheaper.
Good stuff. I hope Jacinda, Grant and co are listening. My fear is the only plan in the policy toolbox is to wait for Parker to replace the Resource Management Act, which could be too late, given the growing size of the housing crisis.
The government could and should act before Christmas to change expectations before the summer house sales take off.
Robertson should be firmly telling the RB in his meeting with them that taking the LVR restrictions off landlords was a mistake. He should use a good proportion of his massive infrastructure budget to solve some of the resource coordination problems between local and central government that has held this country back for so long. He should make some sort of housing related infrastructure announcement before Christmas.
Woods needs to be using all the tools in the Kainga Ora toolbox -including master planning new higher density areas where agglomeration is more likely to occur. Also her Housing and Urban Development department needs to get the infrastructure financing tool working. Social housing is clearly struggling - the waiting list is growing faster than Kainga Ora can build state houses. Something more is required.
Wood needs to ensure transport is coordinated with this housing investment.
Parker could add to his excellent NPS-UD by directing local authorities to switch to land value rates (unimproved value rating) at least for the city centres and walkable areas around rapid transit that have been up-zoned to 6 stories by the NPS-UD. It is these areas where agglomeration occurs and results in higher land values. Land value rates will ensure that the higher land price/higher agglomeration areas results in a more productive substitution of land for capital in the form of taller and bulkier buildings (in effect new land created). Land tax rates does this by taxing land not buildings. Parker should also consider NPS reforms for setback, recession planes and viewshaft planning restrictions.
Comparative advantage says there's no point trying to outcompete Melbourne, Singapore or Shenzhen in terms of building swathes of apartments or innovation hubs. Instead, let's focus on quality of life and niche industries. Only 0.85% of land is urbanised so there is room to build well connected suburban areas that are family friendly and nice to live in.
What's the purpose of our newest and most modern city then - Christchurch?
We spent untold billions re-building it. But what for? It did have a raison d'etre - to service the vast exports from the Canterbury Plans a century ago, and in decline ever since. But what does Christchurch do, today, that other cities can't and don't? The same applies to Auckland. Sure, it is the import/export point for trade, but the number of workers needed to support that is tiny compared to its size. The days of an army of paper-shufflers needed to support trade are over. It's all done electronically today; from banking to shipping documentation.
What is it that Auckland does, that a newly built Christchurch can't?
Tairua looks like a lovely Coromandal town but probably not a good place if you need specialist healthcare, or a good place to start a business that requires University educated workers, or a place for young people to find a partner, or place that sells specialist consumer items....
GV 27 would you do everything on the cloud? Find a partner, make a business deal where a good faith relationship was important, get specialist healthcare treatment, educate your children, socialise with like-minded people etc.
I can understand if some people decide a small beautiful spot in NZ fulfils those sort of questions for them - it is a free country (and long may it continue to be). But the reality is for most people, for a very long time now, the choice they have made is to move to (or stay in) a city.
Agglomeration means the place where connections between people occur - sharing ideas, searching for partners, trading, looking for work, looking for workers. sharing common resources, shopping, accessing specialist services etc. All of these things and many more are best found in towns and cities.
No one forces anyone to live in Christchurch or Auckland - people choose to because it improves their life prospects - because agglomeration exists. This report is just trying to improve this process - I think it is good work.
P.S Christchurch BTW funded most of its rebuild itself because it was well insured. It was a shame central government hadn't kept its self-insurance scheme (EQC) topped-up.
Christchurch was well insured?
Then why did the Government have to step in and create Southern Response? It wasn't that EQC was deficient as such but because AMI couldn't meet it's claims - by a country mile.
Christchurch may have looked well insured, on paper, but in reality, whichever way you look, it wasn't.
My question stands: What is it that a new Christchurch does, today, that many other places in New Zealand don't or can't?
If the answer is: It gives us a whole heap of shiny new bars for people, to 'agglomerate' in, then we are in more trouble than even I think!
Eventually, we'll realise that we can't run an economy on the Service Industry servicing the Service industry. Places like India have the jump on us doing that, and will always do that better and cheaper than us - until our wages and costs are comparable to theirs. Is that what we want?
You don't get it bw. Agglomeration is the free market - it is the millions of decisions people freely make in that clustering mass of humanity that is a Christchurch or an Auckland or any other place where people gather together. I cannot define it in the way you ask. It would be foolish at the level of the Soviet Union 5 year plans to try.
But what we do know is that these clustering masses of people if provided with the right policy settings and the right infrastructure can improve their life prospects, their well being, their economic activity etc.
Yes, and does that seem like a good long term solution to you? Does your child intend to rent a room in a flat their entire adult life, and is that what you would want for them?
Also, whether it is affordable for your child obviously depends on their individual circumstances. But it's worth pointing out that under the current Stats NZ housing affordability measures, that would not be affordable (less than 30% of take home salary) for a newly qualified teacher, for example. (Even assuming they don't have a student loan). It's a sorry state of affairs when educated, qualified professionals have trouble renting an affordable room in a shared house.
You make it sound like there might be viable alternatives for the old lady in the very high value home to downsize too.
Is there some particular reason you would argue that the entitlement of older asset holders to live cheap while receiving constant injections of value from surrounding society and the central bank outweigh the entitlement of young Kiwi families to have access to affordable housing?
Oh how quickly land bankers go to the elderly widow defence... Most of the agglomeration - the increase activity, connections etc will happen around city centres and urban hubs (mostly with rapid transit) so if rates were switch from improved to unimproved land value in just those locations. which are also the locations that have been up-zoned by the NPS-UD, then it wouldn't affect many 'elderly widows'. Also most councils have a system where elderly folk can defer rate bills until they pass away and the property is sold.
Who is a land banker? I’m just a boomer that voted for Jacinda because I have faith in her ability to provide homes for all. I didn’t vote to be forced out of my home or to have my children’s inheritance diminished. In any case Jacinda said no new taxes so this isn’t a concern.
Home owners and landlords this past year have made on average $50,000 per house and their mortgage interest payments are down a lot thanks to the Reserve Bank.
Renters have been given no such asset price inflation gift and rents are rising not falling. If the renters want to buy a house then it will cost them an extra $50,000 on average.
I have some sympathy for the stealing argument. Certainly home owners and landlords did not earn the $50,000 from hard work or business skills.
My mortgage payment is fixed, like most mortgage holders, so my payments haven't moved at all. If you're in the position to break or take down new debt, sure, but pretending this is universal when that's not how the majority of mortgages work is misleading. The gain is irrelevant and I'd still be buying and selling in the same market when I need an extra bedroom. So what is the gain to me again?
I apologise for calling you a land banker Rex - but that is the first argument the group that benefits from ever rising house prices use when land value taxes are suggested. A change to the local government rating system is not a new central government tax - especially because it isn't intended to increase the overall tax take for local councils. It is highly doubtful the change would forced you out of your home. The change would not be that dramatic for homeowners. The main effect would be on empty plots. Also if your rates did increase a lot that would be because land values and house prices have increased a lot - so you would certainly have more not less to pass down to the children.
Your choice (the status quo) could just as easily be framed as a transfer of wealth from salary and wage earners to property owners. Just to be clear, higher property prices result in a transfer of wealth from younger to older generations but you seem to perfectly happy with that.
Also the bailout of AMI/Southern Response was tiny compared to the tens of $billions of spending that came from private insurance payouts. That spending of course generated a lot of tax which was quite helpful for the government of the day that had large deficits due to the GFC...
Don't be too quick to dismiss the group of authors. Politically-sensitive subjects such as immigration, where most academics usually resort to a neoliberal approach, are adequately addressed in the report.
The report highlights the need for a population strategy and states:
immigration policy must be coordinated with housing and urban policies to ensure that we have the requisite dwelling stock and utility infrastructure to support increases in
population. It is also critical that a population strategy coordinates with environmental policy in order to accommodate a growing population in a sustainable manner.
Any population strategy would be asking about whether NZers actually want sustained growth like we've seen in the last two decades, given we're only just now getting the planning reform we needed back then to build enough houses to accommodate the people we have now. 'Growing' from here (and whether we should) is an existential question that remains unaddressed, although the article still stands for meeting our current affordability issues and housing shortages.
Sorry but i think they are delusional
Jobs & Income ....
Thats what makes things "affordable"
Which ALL ultimately comes back to extracting/fleecing/leveraging resources somewhere
And we are in overshoot mode now
They cant seem to get their head around it ... waffling on about knowledge economies & changes in approach
Which ALL ultimately comes back to extracting/fleecing/leveraging resources somewhere
You need knowledge to succeed in resource extraction as well. Australia captures only 0.53% of its own lithium exports by sticking to mining and shipping raw ore.
The country has abundant mineral reserves for 90% of elements need to produce lithium-ion batteries. The costs of industrial electricity, skilled labour and factory construction combined are cheaper in Australia than in South Korea and the US, where 20% and 17% of the world's lithium-ion batteries are produced respectively.
That's what lack of knowledge looks like!
That would allow the incumbents to further shift income from the future into their current land values. Landholders need to be paying for the cost of their city now that they are the beneficiaries of. We need to stop loading the financial burden on future generations simply to jack up land values and make everything more expensive.
Fundamentally flawed logic.
Land tax doesnt reduce the price of property, it simply transfers part of the future value of the property to the government (the future tax cash flows).
So a buyer pays twice, once for the property and once for all the tax they need to pay.
It's a lousy idea that benefits nobody.
Disagree a land tax with an owner occupier exemption will have the following effects.
1) Create substantial extra revenue for the government which will allow them to lower other taxes income, company, gst. This will increase after tax profits of businesses giving them more money to reinvest into their businesses creating more jobs & real wealth
2) Heavily incentivize investors to move money out of property & into businesses, this capital boost will provide businesses with the abilty to expand & will increase jobs & create real wealth
3) Lower property prices which means young people (tomorrows entrepreneurs) will not get saddled with absurd amounts of debt & after paying off their substantially smaller mortgages will be in a great position to invest in their own businesses that will provide jobs to kiwis & add real value to the economy.
For the potential buyer, a land tax will dilute their future returns from the property (rent savings for an owner-occupier), so they are likely to value the land lower than they would otherwise.
A progressive land tax system means land close to public transport corridors and CBDs face a higher tax rate than far-flung rural areas, forcing them to free up land for development or bear the non-value added increase in maintenance expenses.
The developers will also build more denser housing to ensure the tax burden is shared across multiple residents.
Land should be taxed because when it goes up in value it is not from any labour or enterprise that the property owner has done. Mainly it is the result of the actions of the wider community.
Other benefits of a tax or rating on land verus other options are;
4) It raises the holding costs for land bankers while decreasing the marginal cost of building upon or otherwise providing capital improvements to the land.
5) It improves the productivity of substituting land for capital which is one way to build affordable housing. Tokyo for instance has more expensive land than London but cheaper housing, because it more productively utilises its land.
https://jamesjgleeson.wordpress.com/2019/05/25/do-financialisation-and-…
Churchill would disagree with you about land value tax being a lousy idea.
https://www.landvaluetax.org/history/winston-churchill-said-it-all-bett…
Same with famed right wing economist Milton Friedman. https://youtu.be/yS7Jb58hcsc
Yeah, but this is not fair.
Churchill and Friedman were genuinely concerned with real economic solutions, not just with shouting down anything that might reduce the unearned windfall income folk here are used to through a centrally supported, subsidised property investment.
You need to look at the goals that tax normally achieves:
1. Reclaiming the money the government has spent into the economy.
2. Ratifying the value of money.
3. Reorganising the economy.
4. Redistributing income and wealth within the economy.
5. Repricing goods and services.
6. Raising representation in a democracy.
Based on https://www.taxresearch.org.uk/Blog/2018/01/03/the-reasons-to-tax/
For 3rd point Reorganising the economy, a proper tax reform will help to cool down our real estate industry and to avoid financial crisis in future. That's why Government should introduce a new tax. Prices will be ultimately determined by the market.
Just because something is the right thing to do for the city and country won't necessarily make it popular with voters. My advice to all governments is to stay out of housing matters in New Zealand, there is only a low probability that you'll win big and a high probability that you'll lose votes on aggregate. Government needs to understand that "staying in it's lane" means making sure property prices are perpetually inflated and, as incomes are static, that just means they need to accept more negative socioeconomic outcomes.
So these experts are only now seeing the disconnect between immigration policy's and infrastructure? That's reassuring.
And owning land makes you wealthy regardless of what you have on it? I will let the sheep and fruit trees know they have to go.. I have to build houses to rent, so I can pay my rates and land tax.
Auckland must be affordable.... but govrnment is doing more harm by their action.
In order to free land, What has happened is that houses with 700 or 800 sqmt land that were earlier(before July) going in 900s are now going at double or atleast the vendor is expecting as even, if one house in the area goes at double the RV - entire area house goes up and new houses built on that are also expensive as land value has gone up and also houses built are 200 sqmt plus so affordable houses is a myth created by government reckless policy without proper taxation and by RBNZ action (despite knowing the fire they have created, still no action but wait and watch) unless someone wants to buy a pigeon size unit for a million as now by defination million dollar is affordable despite now we are in uncertain time than before.
they confuse what they think "should" happen with what is
That's the job of an academic - to tell the world what should happen. Ever wondered why a doctorate is often referred to as a 'philosophical degree'?
The way people in NZ berate academia shows how much of a chance this country has of turning into a knowledge economy!
If he [Thomas Edison] had a needle to find in a haystack, he would not stop to reason where it was most likely to be, but would proceed at once with the feverish diligence of a bee, to examine straw after straw until he found the object of his search. … Just a little theory and calculation would have saved him ninety percent of his labor.
-Nikola Tesla
It's sad how popular anti-intellectualism is in this comment section. American talking points seem to have gripped a segment of NZers.
That's because I graduated in Architecture from a top university in Europe and I think it was a whole lot of theoretical fluff, in my first job out of varsity I knew nothing about designing and building, I had to learn it all by doing. I value learning by experience a lot more than learning by listening or reading.
Have been saying this for ages in every type of productivity based article on this site - high house prices reduces economic mobility of everyone, which flows on to a lack of agglomeration benefits. Hence people can't move to/from their existing locations and become staid/stuck and less adaptable and resilient. You will notice the most high value industries require people who are both resilient and adaptable.
High house prices is pretty much the doomsday for future economic prosperity, seemingly no matter which way you look at it. It might feel good in the short term if you are a property owner, but the benefit is basically a massive defunding of future shared prosperity, which includes yourself.
I have seen this multiple times even in my own life, wanting people to shift close or me wanting to shift close to friends/entrepreneurs so we can bang heads together and build some great tech products. Every time it has been stopped in it's tracks - one of us can't find an affordable house to rent/buy and it all falls apart before it even get's off the starting blocks. Combine this with the fact that virtually all investment in this country goes to housing and you have a horrific recipe for future economic prosperity.
You can't eat your house price. I doubt a land tax is going to solve it, but it might help a wee bit if it's progressive, based around transport hubs.
Well said Blobbles. Yes this buying and selling houses to each other at ever higher prices is death to the real economy - of future prosperity - it kills the connections that innovative and productive workplaces, enterprises, start-ups, business partnerships etc require. It is beyond dumb...
Agree.
The main issue with a land tax is that it is meant to incentive the landowner to do something with the land that they would not have done sooner if the land tax wasn't there. Therefore it's a negative cost against the land, which would be a cost that would have been deducted against the price you paid for the land. Like for example, the land needs remedial so it would affect its purchase price downwards.
However, to bring these taxes in retrospectively means the present landowner paid too much for the land (all else being equal), ie the property is worth less than its present value. Although the general thought will be to just add the price of the tax into the price of any development. However, if a land tax was to work, then you would expect to see price decreases anyway due to more supply, but as the tax is only due on the sale, if you keep landbanking, and maybe even restrict supply further, then prices will rise. IE you can use the power of supply restrictions to increase the non-value-added gain of the property to offset the tax.
These types of taxes are a lot easier to implement at the bottom of a cycle, which means the vale of the property reflects its true value-added worth. To do it at the top of a cycle could cause something they don't want to happen - but needs to happen, ie a property crash.
The other ironic side of the tax is you are being taxed on non-valued added costs, which comprises up to 50% or more of the land value, ie taxed on an amenity that does not exist, but if you sell you get to take as cash and leave the new owner with this invisible benefit.
It is a little bit tiresome to see some people solution to everything is tax. It is as tiresome to continue to read that credit creation and allocation is the driver of property ponzi. Not that there is no truth in these arguments. But these are focusing on symptoms of underlying economic issues manifesting, not the actual issue.
Lack of actual economic opportunity in NZ economy is the driving factor behind the mad fixation on property investment. If that is not fixed, the trend will continue.
If you're talking about 'affordability' you have to refer to house price to household income ratios which is currently 9.7 for Auckland, >10 for North Shore
While in theory this may make sense, in reality I think there is little to no appetite for
a) businesses to pay more so incomes increase
b) home owners to take a hit to equity or go negative
From an infrastraucture perspective at least COVID has curbed migration, which frankly was the main cause of the distortion through the 'Shon-key' denial years... which of course tilted the Supply Demand balance pushing house prices higher
Interesting that he is now soap boxing about housing bubbles and affordability...
"Interesting that he is now soap boxing about housing bubbles and affordability..."
Never too late to rewrite history.
Hes also suddenly positioning himself as the man who always disliked Trump ...
"https://www.nzherald.co.nz/nz/sir-john-key-now-i-finally-understand-why…
Wow I'm moving out of Auckland just in time. Just a load more reasons to move listed here. Really pretty sad, have lived in Auckland for 46 years it was a fantastic city with clean beaches and no traffic and no people and it has slowly turned into an overpriced hellhole.
A house under negotiation when checked with RE agent about 3 weeks before was expecting 1.2 million but when checked again yesterday was expecting 1.4 million as another similar house on street just sold for 1.4 million.
This reflects the housing boom in Auckland and the same house before lockdown would have been near around a million so 1.2 was high but now jump from 1.2 to 1.4 million is beyond and may go.
Landholding incentives are the primary problem. They also shift the incentives for landholders to push for different regulatory changes. Change the landholding incentives and you'll find the vested interests pushing for the ability to develop more, rather than the current state of play where landholders lobby for more restriction on the land use of others so that their land banking pays off.
Ditto
Left 5 years ago. Was showing a visiting friend around Auckland, had lunch at Devonport. Left at 1:00 pm to go to Piha. After navigating solid traffic for 2 hours got stuck at the railway crossing in Glen Eden for 30 minutes.. Not pleasant. That was the end of a life-time love affair with Auckland
It's going to continue to be law of the jungle, and actually get worse.
Do what you can to get ahead.
One day -10 years, 20 years later- it will be a total mess then something might be done. But it will be far too late. We will turn in to something approaching South Africa.
But the powers to be, think they are on the right path, and the only reason it is not working is they are not doing more of it or are not doing it quickly enough.
But the reason it is not working is because it is the wrong thing to do, so doing more of the wrong thing or doing the wrong thing quicker, only makes it worse.
Nonconciuos incompetents, ie they are so bad that they don't even realize they are bad.
1) Land tax + 1
2) "A clear population strategy is needed" +1
3) "This must include significant reform now that the Resource Management Act (RMA)" +1
Real house prices have been rising since the 1970s/80s.
We have had systemic failure by government after government to address the 3 issues above.
Time for real leadership.
Land tax is essentially just another natural resource royalty. And if you believe the natural resources of a nation belong to all citizens of that nation, you'd agree it's only fair that everybody benefit from the unearned land rents, just like you'd expect everyone to benefit from the minerals, oil, gas, fishing quota, water, etc. If you haven't read Thomas Paine's "Agrarian Justice" I'd recommend it. http://piketty.pse.ens.fr/files/Paine1795.pdf
Land rents are just taxes you pay to people for the fact that they are richer than you.
Land taxes reduce land values, return unearned land rents to the people, shift tax burden onto the wealthy and privileged, reduce rents due to the shifted incentives around landholdings that result in increased development and productive occupation of land, reduce dereliction, reduces mortgage debt and subsequent interest payments to banks, and reduces other taxes if implemented revenue neutral, which would mean increased productivity and trade if GST and income taxes are reduced. It really is a silver bullet.
Further recommended reading is Henry George's "Progress and Poverty" https://en.m.wikipedia.org/wiki/Progress_and_Poverty
"But immigration policy must be coordinated with housing and urban policies to ensure that we have the requisite dwelling stock and utility infrastructure to support increases in population.
"It is also critical that a population strategy coordinates with environmental policy in order to accommodate a growing population in a sustainable manner."
Duh.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.