Tinkering with New Zealand's migration policy could make matters worse, according to BNZ chief economist Tony Alexander.
The Labour Party's suggesting controlling migration levels in the face of a surge in inbound migration that could see a net gain in migrants in excess of 40,000 this year.
In his Weekly Overview, Alexander said history showed that when a government used fiscal policy to try to smooth the economic cycle the outcome was usually a worsening of the cycle.
"That is because by the time the need for policy change is recognised, decided, implemented, then becomes effective, the cycle has usually turned anyway.
"So upsides are exacerbated and downturns worsened.
"One suspects the same outcome were our migration policy altered to try to influence the economic cycle, though with the extra negative of painting NZ in the minds of potential migrants as an unreliable destination liable to shut the doors at any time, even if one has spent a year going through various pre-moving steps.
"Actually that would probably just cause our perceived attitude toward migrants to match our actual attitude toward foreign capital. Unwelcoming."
Alexander said anyone who "may feel attracted to the idea" of trying to control house prices by tinkering with migration rules first needed to demand of the policy proposers what their underlying population policy was.
"In particular, if they have some desired rate of population growth in mind, how does it manifest itself in terms of desired rates of growth in the various population groups - Asian, Maori, Pacifica, European descendants etc. and one must also give thought to the regional component of one's population policy. See why no-one has a population policy? Icky."
Alexander said targeting the housing market by trying to alter migration flows was "well down on the list of things which can usefully be done to try and make housing more affordable over the long run in New Zealand".
He said key parts of the solution to housing affordability could include:
- removing residential and rural land designations
- buyers choosing standardised designs from rather than individually architecturally designed abodes
- councils abolishing development and infrastructure fees and placing costs back on the existing rate paying base
- reducing construction standards with regard to insulation, earthquake preparedness etc
- banning developers from imposing rules for houses built in their new subdivisions
- removing restrictions on placement of multi-storey buildings.
"See why affordability won't improve much if ever from current levels? Most of these things are complete non-goers which I personally would not support."
But these measures would have a far greater sustained impact than restricting foreigners buying houses, Alexander said - though he does support that policy "and think at least getting a register of which folk offshore are buying our homes would be a useful and logical thing to do".
Alexander said he had noted and warned 18 months ago that with house prices having risen so much during a period of below average migration flows, "one should imagine what would happen when those flows turned upward, as they have now done".
He said that in the same vein house prices had risen firmly during an extended period of minimal wage and salary growth for a great number of people.
"Imagine what will happen from now on as remuneration growth naturally accelerates because of the tightening labour market and the balance of power shifting from employers running the same stories of cash flow woe as their profits rise, to increasingly empowered and employees regaining their individual and collective strength. House prices keep rising.
"...And just a reminder. You don't need either high turnover or high lending growth for house prices or the price of anything to rise at a fast pace.
"So don't be fooled into thinking that just because residential real estate activity has fallen 9% in the past six months on a year ago, or that lending growth is not accelerating that the house price cycle has finished.
"It has a long way to go, especially as young people start creeping back out of the woodwork after running away as soon as the LVR rules became effective in October."
Further on in the same overview Alexander said that New Zealand was a country where generally there was an unwillingness to grasp the big picture and enact huge policy changes. (No population policy debate for instance.)
"In fact we strongly tend to vote for political parties which promise to maintain the status quo rather than those with a vast policy platform of reform. We vote out those who look like they are getting above themselves with too many changes.
"Improving the housing situation in New Zealand and avoiding the social woe we have been warning about for a number of years now is simply beyond our willingness if not ability to tolerate. The changes in the likes of housing regulations would be huge.
"In fact the furore created by the list of eight factors which I published last year shows we are not going to see any sea change to the housing situation going forward. Affordability will worsen on a trend basis and only improve a tad cyclically now and then when financing costs decline in response to faltering economic growth.
"If you understand the Kiwi psyche well enough to understand this then you'll also understand why we will keep favouring investment in housing assets.
"It's almost like one can run a watered down version of the argument: 'They're not making any more of it', which farmers apply to arable land. Understanding this will lead to understanding that a capital gains tax as proposed by the left leaning parties will make no difference. Affordability will only be sharply improved if the cost of building new houses absolutely plummets.
"Not by 10% or 20% but 50% including the land cost.
"Given that surveys I was running last year and earlier this year show that more of us are happy about house prices rising than are unhappy, we're not going to vote for anyone who proposes radical solutions which reduce our accrued equity.
"What will happen then? Governments and local authorities will have no choice other than to help develop a lot more social housing. Hence Labour's policy of building 10,000 state houses a year has strong merit.
"But they won't be able to easily do it because the builders won't be available (remember they want to restrict inflows of migrants), the cost of buying land to disperse state houses throughout existing suburbs will be too high, and they won't want to create new versions of the state house enclaves already in place in the likes of Porirua. They may instead try to boost the state housing stock by purchasing existing houses. That means more demand.
"House prices keep moving upward. The only real uncertainty here is the size of the impact which rising interest rates will have. Given the flattening of the yield curve bringing fixed rates at and probably soon below floating rates, that high financing cost scenario may not even come into play for another couple of years.
"If I Were A Potential House Buyer...... I would see the same lack of reason to hold off my purchase now as I have seen since mid-2009. "
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