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.
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—
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.