By Alex Tarrant
Prime Minister Bill English has defended his government’s record on housing supply and demand responses, saying demand had both been underpinned by government subsidies for first home buyers while also being cut by way of loan-to-value ratio restrictions and introduction of a two-year capital gains tax which excludes the family home.
Supply was set to be boosted by government moves to allow increased land supply, although the building industry was saying it was maxed out at the current rate of 10,000 a year in Auckland. He used that argument to defend the need for continuing high immigration.
English brushed aside suggestions that wages would have to keep rising for 50 years with house prices remaining flat for affordability metrics to return to more acceptable levels in Auckland, or that house prices would alternatively have to fall 60%. It was good that prices were steady now, he said.
Meanwhile, he also laid out why National would not even consider researching fundamental changes to New Zealand’s tax system, including asset taxes, saying such moves would hit superannuants with low cash incomes the hardest, and that he favours existing settings including labour income taxes because they rewarded work.
In separate news, the latest Electoral Commission stats on voter enrolment show 98% of superannuants are enrolled to vote. There are 699,300 of them (and an extra 255,000 60-64 year-olds who are nearly there), while only 69% of 18-24 year olds are enrolled (317,000), 77% of 25-29 year-olds (260,100) and 87% of 30-34 year olds (260,400).
English perhaps faced his toughest interview of the campaign thus far, with Radio NZ’s Kathryn Ryan asking the questions on Nine to Noon. There were some rather interesting exchanges on housing demand and supply.
He was asked by Ryan whether it was too hard for an increasing number of New Zealanders to start building an asset base, including equity in a house. He replied that there had been “moderate but consistent” increases in income. He pointed to the minimum wage rising by $8,000 since National took office, and that the average wage was up $13,000 – twice the rate of inflation.
“So, inflation’s been very low, you’ve seen these moderate but consistent gains in incomes, and then with respect to say, getting into the housing market, 30,000 people have already used the HomeStart support. We announced the package the other day – another 80,000 over the next four years, some of them with a grant of up to $30,000 from government will be able to get in,” he said.
This relied on the on-going strength of the economy, he said. “But I can tell you this: If you’re concerned about peoples’ incomes, then the answer is not more tax and more government spending.”
Ryan put to English that the median house price in Auckland had surpassed 10 times the normal household income and that rents had risen at the same time. She put to him a comment from former Reserve Bank Governor and National Party leader, Don Brash, that it would take 50 years for wages to catch up with house prices in terms of returning affordability metrics to normal, or that we’d need a 60% house price reduction.
“Well, look, that’s a pretty dramatic description of it, I’d have to say,” English said. “The house prices are now flat to falling. And…30,000 first home buyers got in, remarkably, even [with] these house prices.” And a further 80,000 will further, he said referencing the new HomeStart package again. “Because we want people to be able to get into those houses.”
He then tried to turn attention to the supply side. “We’ve worked intensively over recent years to change the way that councils operate with the availability of land. Because the fundamental problem, particularly here in Auckland was that, when the demand came on – 150,000 Kiwis who we thought would leave in the last five years, but stayed home, that’s extra pressure in the market – the market took too long to react.
“Now, the supply is there. We’re in the biggest construction boom that New Zealand’s seen in decades. Both the housing and the support infrastructure,” English said.
Ryan jumped in to put to English that the government’s own housing pipeline report showed building wasn’t keeping up with demand. Could National not have done anything more on the demand side such as reducing immigration, capital gains tax or banning overseas buyers?
“And a number of steps were taken,” English said. “The bright line test on flipping the houses for speculation, the LVRs came in from the Reserve Bank – I oversaw that process. The tax requirements around foreigners were significantly upgraded. And that’s all had an effect on demand.
“This is why prices are flat to falling. We’ve seen it happen in Christchurch where the supply expanded rapidly after the earthquake – prices falling there. Here [Auckland], they’re flat to falling. Look, you don’t want a drastic adjustment. Because this is peoples’ main asset. What you do want is, an economy that’s growing, that is going to continue to lift incomes…”
The conversation shifted to state housing. Ryan put to English that New Zealand had a net 4,000 fewer state houses than in 2015 – particularly if it was known that demand was increasing over supply.
English said the government has been ensuring supply was available for those most in need. “We’ve changed the social housing system. So, the numbers that are used about the Housing New Zealand-owned houses, are only part – they’re still the major part – but they’re not all the social houses that are available.”
He pointed to the Tamaki redevelopment project with 2,500 social houses, which weren’t counted under the Housing NZ figures. Several thousand others were coming into the market as well, he said. “So, that supply is expanding.”
10,000 a year ‘as fast as the industry can do’
The government was also spending $2 billion a year underpinning rentals. “Sixty percent of all rentals in New Zealand are subsidised by government, and that has grown as the rentals have grown. On 1 April next year, accommodation assistance, particularly in South and West Auckland will grow quite significantly,” he said. Some families would get over $100 a week extra, “because their rents have gone up”.
“Again, as the economy expands, the industry tells us they’re going about as fast as they can at 10,000 a year [in Auckland]. Slashing migration is going to make it very difficult to build the houses and the roads that we need to accommodate a growing economy and a growing population.”
The haves vs the have-nots
Ryan asked whether New Zealand was becoming divided between Kiwis who had assets, such as equity in a house, and those who couldn’t get that – even if they had a decent income. “The growing economy is going to improve that,” English said. “As incomes rise, as the houses get built.”
He raised an example of people trying to get into the housing market. A combination of HomeStart and the Welcome Home Loan 10% equity scheme meant a couple that had been in KiwiSaver five years, with no other savings, would be able to put down a deposit on a $600,000 house [in Auckland].
“Now, 18% of Auckland’s sales in the last year were under $600,000, so the opportunity is there. But, again, taking more tax off them, creating uncertainty around capital gains tax and so on – that is going to slow things down and they’ll go backwards.”
That took the conversation onto the tax system. Had English’s thinking changed on whether a different approach might now be needed to New Zealand’s tax settings? Was the system fair and deliverable, Ryan asked.
“We have one of the best tax systems in the world. It’s fair, it’s very consistent. Everyone pays pretty much the statutory rate that they’re meant to pay. There’s very few opportunities for avoidance. It’s part of what has enabled the growth and certainty in this economy,” English said. “Because people [are] now focusing on expanding the businesses, employing, exporting, rather than trying to avoid tax.”
Although it hadn’t been fundamentally changed since the late 1980s, when the tax scale was flattened with top income tax rates coming down and GST coming in, Ryan said. Was it time to look at things like asset taxes? Particularly after a period of low interest rates had helped fuel asset price rises.
English said National would not explore such options. “We believe the tax system, as it is, works now. Rewards effort. And you can see the uncertainty that’s created when you’ve got the Labour Party unwilling to actually say clearly what they want to do.”
How about environmental or externality taxes? Why should taxpayers clean up after polluters making profit out of their activities, Ryan asked. English said there had been an enormous amount of work on environmental impacts in rural areas. People there were now grappling with extensive investment to mitigate this. Nutrient limits had been set catchment, by catchment, a national measurement system was in place.
“We believe that technology that changes farming practice is going to be much more helpful than what has been a randomly proposed tax just on one group, which doesn’t actually relate to the environmental impact.”
Ryan tried again of asset taxes: National was not interested in looking at, where people who had built assets and wealth should now be contributing tax relative to what was taken out of the pay packets of people now struggling to build those assets?
“Look at who is the largest group of asset holders. Superannuitants,” English said. “And they don’t have large incomes. They pay rates, as local body tax now. If you were going to bring in wealth taxes, that’s one of the biggest single problems with them. Often, you’re levying the tax on older people who hold assets, have low cash incomes and can’t pay it.”