Don't scare the horses: Incremental housing affordability improvements the name of the game for both National and Labour ahead of this September's election; Don't mention the war (on prices)

By Alex Tarrant

Incremental improvements in housing affordability due to rising incomes and flat prices rather than a quicker adjustment due to a rapid reduction in house prices is the National Party mantra heading into September’s election.

It’s hard to tell if Labour’s position is any different.

Prime Minister Bill English told a live NZ Herald interview Tuesday morning that a fall in the house price to income ratio to three-to-four times would imply a crash in the market that no one would want to see. English said the best way to improve affordability would be house prices remaining flat as more supply becomes available, with people’s incomes rising over time.

English was referring to comments made over the weekend by Labour’s Phil Twyford that the ideal house price to income ratio would be three times. When pressed on The Nation that Labour would therefore like to see prices fall (the Auckland ratio is 10 times), Twyford reverted to the ‘don’t scare the horses position’ of saying that he wanted to stabilise the market while building more homes priced at the lower end.

That was the same interview where National's Amy Adams tried defending a rise in Auckland house prices of 60% under National by arguing it had been 100% under Helen Clark's previous Labour government.

In agreement

Housing affordability could actually be argued as something the two major parties agree on: neither wants to be seen championing falling house values. The messaging is a bit different: National’s tactic is to try and scare people into thinking Labour will crash the market while Labour warns the market will take off again if National gets back in power, to the pain of first home buyers.

Speaking to the Herald Tuesday, English said housing affordability is set to improve if the market remains flat while incomes rise, as is currently happening. He pointed to estimates that 200,000 houses were set to be built over the next ten years.

Use of the 200,000 over three years figure has become National’s favourite attack line against Labour’s KiwiBuild, which promises 100,000 ‘affordable’ houses over ten years. It’s a nationwide estimate from the building industry. Problem is, they haven’t been meeting their predictions over the past few years, particularly in Auckland.

English said the government had been working hard on “changing the system” to allow for greater supply while also flattening building cycles so the differences between peaks and troughs wouldn’t be as great going forward. A first home buyer package with government deposit subsidies, LVR restrictions and other measures had served to help first home buyers, he argued.

“Housing affordability is going to get better.” Rather cryptically he foresaw a “positive outlook for our housing market and first home buyers.” English referenced the Christchurch market, where a supply boost had led to flat-to-falling prices in the city.

The message is that National would like to see this rolled out across other areas that had experienced price growth in recent years – although just with the "flat" bit and no mention of the word "falling".

From the weekend – here’s part of the Nation debate between Labour’s Phil Twyford and National’s Amy Adams on housing affordability:

Mr Twyford, Auckland houses cost about 10 times income. What should they be?

Twyford: Ideally, they should be three times. If we had a housing market that was working properly, your housing would be— the median price would be about three to four times the median household income. But it’s totally out of whack. The Economist magazine recently said, on three out of five indicators, New Zealand had the most expensive housing in the world relative to income.

So is it Labour’s goal to get it down to that – about four times?

Twyford: We want to stabilise the housing market and stop these ridiculous, year on year, capital gains that have made housing unaffordable for a whole generation of young Kiwis.

But in essence, you’re going to drop the value of houses, if you want them to be four times the price of the average income.

Twyford: Well, we’re going to build through KiwiBuild. We’re going to 100,000 affordable homes.

I want to come to KiwiBuild in a moment. I just want to talk to you about the price.

Twyford: That will make housing affordable for young Kiwi families. That’s our policy.

Well, do you need a capital gains tax to get that threshold down to where you would want it to be?

Twyford: Well, we are going to shift the goalposts by taxing speculators. So under our plan, if a speculator sells within five years—

Yeah, that’s the bright-line. I am asking you about capital gains – a bit of a sensitive issue for Labour.

Twyford: Not a sensitive issue at all.

So do you think we need a capital gains—?

Twyford: If a speculator sells a rental property within five years, they will pay income tax on the capital gain.

Yeah, we know about the bright-line. What we don’t know about is a capital gains tax. So do you think that you need a capital gains tax to get house prices down to the ratios that you think are right?

Twyford: Well, we think comprehensive tax reform is overdue in this country, not only to tilt the playing field away from real estate speculation

Last chance – capital gains tax?

Adams: Answer the question, Phil.

Twyford: In the first three years, we’re going to do a tax working group that will redesign the entire tax system.

I know that. Do you think we need it? All right, so he doesn’t want to answer that one.

Adams: So it’s another tax they won’t tell us about until after the election. This is becoming a consistent theme from Labour.

Okay. So, Ms Adams, Phil Twyford is saying about four times the average income would be about right for the ratios. Do you think it would be a good thing for house prices to go down?

Adams: Look, what we want to do – and where I do agree with Mr Twyford – is it is about getting the housing market working correctly. And that’s why our approach to affordability has had three prongs to it. First of all, when Government is involved in building and developing market houses, we’ve committed to at least 20% of those being affordable in terms of the HomeStart KiwiSaver contributions. The second part of our reforms, and the biggest part of it, is getting that market working correctly by ensuring that there is adequate land supply coming to market, by freeing up the development. Because we’re seeing, Lisa, in Christchurch, that when you do that, prices absolutely adjust, and in some cases, do fall, but certainly level. And of course, we’re funding the infrastructure, because you can’t build houses without the infrastructure to support them. Now, we’ve committed $1.6 billion to support that infrastructure. And the final part around affordability is making sure that we have a strong economy, because if Kiwis have jobs, if they have good incomes, and if the economy is working well, then the interest rates stay low.

So you’ve outlined sort of market measures. But the thing is, between 2011 and 2016, the median house price in Auckland went up 70%, according to Barfoot figures. Are you happy with that, or is that a failure? Because it was on your watch that that happened.

Adams: It’s no doubt that there was a very overheated part of the Auckland housing market. But what’s interesting is if you look at the—

So that’s a fail, is it?

Adams: What I’m saying is that there was no doubt that they, in my view, went up too fast, too quickly, and that they had to slow down, and we’ve been working very hard. Now, the reason they did that—

But your party was in charge of market, kind of, conditions that you’re laying out – you’ve just laid them out before.

Adams: Let’s look at that. So, actually, if you look at the—

And it went up 70%. So is that a fail?

Adams: Okay, so let’s look at two things with that. First of all, the nine years under the last Labour government, house prices

I’m asking you about your tenure. I’m interested in your tenure, because that’s what you can control.

Adams: The comparison, though, is 100% under the last Labour government to around 57% under us. What I’m saying to you is that the biggest indicator of what drives those prices up is land use regulation. Now, when we have wanted—

Hang on.

Adams: Well, he had a lot longer to answer this question. When we’ve wanted to reform the RMA to address land use regulation to bring on legislation for areas like Pt England and Three Kings, every time, Labour has opposed it. So they talk a good game about working the housing market, and they oppose every single reform that addresses it.

Mr Twyford, you’re blocking reforms to make housing more affordable,…

Twyford: How are we blocking them, Lisa? How are we blocking them?

…according to Ms Adams.

Adams: You’ve voted against every RMA reform. You’ve voted against Pt England. You’ve voted against Three Kings. You’ve opposed the Urban Development Strategy. You’ve done nothing to address land supply rules.

Twyford: So, Amy’s party has been blaming the RMA for the last 10 years for expensive housing. They’ve done nothing effective in nine years in government to reform the RMA. We’ve promised to abolish the urban growth boundary and reform the planning system so that our cities can grow. National has voted against it twice in the Parliament. They talk a good game, but actually they’ve done nothing to fix the planning system.

Adams: Even your mate Phil Goff doesn’t believe that will work, because, actually, if you don’t look at the infrastructure that underpins houses, you’re pulling numbers out of thin air, Phil.

Twyford: No. We’ve promised to reform infrastructure financing, Lisa.

Adams: You’re talking about houses you can’t build, you can’t pay for, you have no land for and you have no infrastructure for.

Twyford: We’ve promised to reform infrastructure financing with infrastructure bonds. They’ve done nothing about that in nine years.

Adams: That’s just more tax for Council and more debt for Council.

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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21 Comments

We should have 300% penalty Rates for vacant residential land being held by speculators, that has been vacant and unused for over say 2 or 3 years since subdivision , this would deter this awful practice of land banking when we can least afford it form a social point of view .

Auckland council could make a tough unpopular decisions , they are already so far down the popularity stakes that this type of measure would be easy to do .

Politicians will not go there in an election year , so only council can do this

Your comments get crazier by the day.
Fast approaching fully paid membership to the ZS/DGZ club, Boatman.

Do you not think it would discourage subdivisions in the first place ? It is hard enough as it is , without the risk of being hit by a huge tax bill should development stall for any reason.

You miss the point completely , we have vast holdings of undeveloped land that is idle , owned by landbankers .

They are constraining supply .

If you subdivide and sell or build thats okay , but if you are a speculator with no intention of ever adding value , then you should be penalised

"we have vast holdings of undeveloped land that is idle , owned by landbankers." - that may be true , but has nothing to do with what you suggested :
"300% penalty Rates for vacant residential land being held by speculators, that has been vacant and unused for over say 2 or 3 years since subdivision "
What I am saying is that triggering punitive tax rates based on time of subdivision is self defeating.

So Bill English now argues that " LVR restrictions had served to help first home buyers".
Hooray!,
But last week he was calling for a plan to remove them, so what will his view be next week?

Is that what those called politicians do best by talking about anything as long as serving their arguments?

A comprehensive land tax of about 1-2% would sort this all out in short order. A corresponding drop in GST to about 10% or making the first $10k of income tax free would be a good complement.

Nonsense . Why do you think it does not exist in this form , anywhere ?

Because the landholders, banks and real estate agents have disproportionate influence.

They have high property taxes in many places including Texas which keeps housing extremely affordable. But personally I think you don't want to disincentivse capital improvements. Because you really want to increase tenancy supply which would help reduce the rents. So I prefer an LVT over a CIT.

Also, the first labour government implemented a land tax, and it worked famously. It's one of the reasons why there was so much capital gain left on the table for the boomers when it was removed.
https://en.wikipedia.org/wiki/First_Labour_Government_of_New_Zealand

Shifting the goal posts .. I said " in this form " - referring to a flat rate land tax as suggested by you. Texas has property taxes ( not land taxes ) ; NZ historically had graduated land taxes , with exemptions ( concurrently with extremely high marginal income tax rates ) - quite a different thing.

Actually, it has a history of working in NZ to break up land banks and get land into the hands of everyday Kiwis. It's one historical factor in why you (presumably) own a home today.

Keeping prices 'flat' whilst income rise requires MORE prudential control. That's almost impossible in a 'democracy' as at each election, one Party or another will try to bribe voters with any changes that have been deemed necessary. Eventually, there will be a Crash. The only question any politician needs to ask themseleves is "Do I want it to be now, when the cost - tragic though it may be - will be less than it will be in the future?" Hence the answer "Don't scare the horses", which makes a catastrophic Crash inevitable. Will it come under Nationals watch or Labours? Load the property Russian Roullet gun, politicians, and find out.......

No politician will ever say that prices are going to crash because in doing so they become an influencing factor or at least expedite that crash. the nearest you will hear is "correction", "plateau", "stall" or "flatten". They dont want the confidence to be completely eradicated from the property market due to how much our economy relies on it.

However if affordability relies on wages catching up, that will take about 20 years so we know that in order for affordability to be attained prices will have to decrease, both parties are well aware of that but they wont be headlining the fact.

I'm sure that we will get some imaginative double speak popping up in the next few weeks/months. "Downwards plateau", "negative upwards growth pattern", "restabilisation of price volatility", and "buyer's market".

Haha, yeah there is no limit to how creative politicians can get with the BS the feed to the masses

Can anyone now doubt that the R.H. Pill Twyford is just a nonsense hot air person who should not be left in charge of a hen house rather than such an important department ??

I often said, every time he opens his trap, a lot of nonsense floods out to overwhelm the misguided and disillusioned people who would believe him ... He just does not make any sense !! and does not hold a coherent argument ... extremely evasive and smooth !!

This is not a Labour slur, but just common sense and logic - i am sure any person could see an illusionist man lying through his teeth and smiles ...

Teflon Twyford is one of the main reasons why Labour will NOT win this Election, the other is called Grant Robertson !!

But, dont stop them please, they are doing a great Job ...

I would suggest that maybe he has modelled himself on John Key & Bill English, seems to be a recipe for success...

"nonsense hot air person who should not be left in charge of a hen house", "a lot of nonsense", "He just does not make any sense !! and does not hold a coherent argument"

Just as well it's not a slur then, as it's got all the marks of one.

I'm not entirely sure what makes a coherent argument for you, but no doubt it involves a lot of capital letters, poor grammar, a word salad, and excessive exclamation marks.

"Adams: Even your mate Phil Goff doesn’t believe that will work, because, actually, if you don’t look at the infrastructure that underpins houses, you’re pulling numbers out of thin air..."

The National Party NZ Government and Labour Party Auckland Council singing in harmony, stereo quality bollocks.

"Adams: You’re talking about houses you can’t build, you can’t pay for, you have no land for and you have no infrastructure for."

9 freaking years of National Party and the Len Brown/Phil Goff pod people spending $billions developing infrastructure for every town in the Auckland region (except Auckland) and yes the city is broke, there is no more infrastructure spending available.