As local councils, the Government and the Reserve Bank all try to grapple with an ever-heating housing market, BNZ chief economist Tony Alexander has come up with some suggestions on how to solve the problem.
Real Estate Institute figures for May out this week showed that the winter is not doing much so far to cool the market. Auckland, which is suffering from a perceived shortage of about 30,000 houses, is the particular problem, with house price inflation currently running at around 15%.
The Government and the Auckland Council have negotiated a housing accord, targeting 39,000 new houses in three years, but the council and Government are at odds over the terms of the legislation enacting it - given that this would currently give central government the power to over-ride the council. See our housing accord articles here.
The Reserve Bank is strongly hinting that it will look at "speed limits" on bank lending to people with low housing deposits, but Prime Minister John Key is pushing for some kind of protection for first-time buyers, while the RBNZ is indicating that it won't do that.
So, while a general state of paralysis seems to be setting in over what to do on the rising house market, Alexander has, in his weekly newsletter made eight suggestions to tackle the problem. He cheerfully concedes that each of the eight suggestions have chances ranging between zero and "mild" of actually being imposed.
Alexander says the optimal solution to the problem "is a quick jump in house supply combined with reductions in building materials costs".
His suggestions are:
- Initiate a large builder training programme targeting not just youth but low skilled migrants. "Yes, the migrant gates would need to be opened. Just the signalling of strong intention to boost builder numbers would make investors think twice about their capital gain assumptions," he says.
- Ban councils from imposing any development fees and allow developers to instal their own infrastructure.
- Create an SOE whose sole purpose is to undercut existing building materials suppliers through bulk purchases from offshore, nodal warehousing and distribution from just three or four locations in the country, with a separate agency responsible for monitoring the quality of materials sourced.
- Initiate a new large state house building programme relying largely on the to be created new carpenters etc. Constrain new state houses to more efficient building systems including containerised modular housing (this doesn’t involve shipping containers), central and screwed in foundations, etc.
- Ban house sales to non-residents (even new houses given the ease with which special developments could arise targeting solely folk offshore and soaking up construction sector resources).
- Impose a tax on all houses owned by Kiwis offshore with the aim of encouraging them to sell them.
- Put in place a capital gains tax on second properties and farmland and immediately payable stamp duty for all second house purchases.
- Rezone all land within 10-20 kilometres of existing city boundaries as residential.
Alexander's assessment of the chances of the eight, in order, of being implemented are: "Low, zero, zero, mild, mild, zero, low, zero."
So, what will happen? Alexander believes that some land will be freed up but it will have little effect section prices. "Construction will soar and rising costs will force higher interest rates and a higher New Zealand dollar," he says.
"The Reserve Bank will tighten high loan to value lending but the impact will be minimal and mainly encourage young buyers to raise more expensive finance elsewhere (a big business opportunity looms there) or to leave the country to make a purchase overseas."
Alexander says people should not get "hung up" thinking that freeing up more land would make all that much difference to the current housing cycle.
"I spoke with a real estate agent today who noted that a project they had sold units in has just been canned because the developer cannot find anyone to build the complex.
"Or more accurately, he got some quotes but not many, for the 32-unit development and the cost would have made it unprofitable given the prices which buyers had signed up and paid deposits for.
"Those deposits are now on their way back to the hopeful buyers. This just goes to reinforce that even now with the number of dwelling consents still well below average, construction resources are scarce and costs escalating," Alexander says.