Pre the start of the election campaign most pundits were picking housing affordability to be an election issue. To date, discussion on the topic has been muted.
In part this may be due to the market self-correcting over the past six months, with prices in the high profile Auckland market being at best flat, if not declining modestly, with our sales numbers year to date at a three-year low.
Scoring political points when the market is flat is hard work.
However, as we draw closer to the election I have no doubt voters will be presented with diverging options.
Potentially the most likely will be around the introduction of capital gains tax on property that is not the main home.
At the time of writing, only the Greens have put their stake in the ground, and introducing a capital gains tax is part of their policy.
All the others have no stance on such a tax. However, Labour is being somewhat coy on the issue.
Based on current public statements if Labour comes into Government it will set up a tax working group, and if that group recommends introducing a capital gains tax a Labour Government will consider its position and has not ruled out introducing such a tax in its first term.
Any such working group is likely to recommend a capital gains tax. Every past working group has, as such groups see all wealth appreciation in its purest form, and the logic of tax specialists is all wealth appreciation should be treated equally.
They are unlikely to recommend excluding the family home but it’s a fair bet that this element of any recommendation will be ignored.
A capital gains tax won't affect house prices
What gives me a degree of disquiet about discussion around a capital gains tax is the claim that it will drive investors from our residential housing market, and hence price will fall.
They will not. You only have to look to the Australian and British markets, where capital gains tax applies, to see it does not affect prices.
There is a place for investors in our market to ensure an adequate supply of rental accommodation.
A better way to manage speculation is the bright line test.
A topic around housing that has stirred up opposing viewpoints is the initiative the Real Estate Institute and Barfoot & Thompson to lobby for LVAs for first time home buyers to be eased.
Interestingly, both National and Labour have supported this position, but it has met resistance from some economists and editorial writers.
Some have suggested the Institute and we are advocating this as a means of rekindling a flagging market. For our part we can demonstrate we have been publicly stating this view for more than 18 months, and our position is based on the view that first time buyers are being harshly treated by a blunt regulatory measure.
All good policy needs to have built into it flexibility to accommodate the needs of those that warrant different treatment.
If first time buyers can meet the servicing needs of a property without having a 20% deposit, then allowing them to enter the market will have no overall impact on prices.
What came as a surprise was media revelations that the majority of trading banks are not even utilising their 10% discretion for first time buyers over concerns about breaching the Reserve Bank regulations. Surely the Reserve Bank and the trading banks can come up with a realistic fix for this anomaly?
And it was good news that the Government has given a firm ‘no’ to the Reserve Bank’s request to have the ability to introduce debt to income (DTI) regulations if it felt they were needed. They are not.
What caught my eye recently was an article by Carmel Fisher in the NZ Herald about large financial institutions in the United States entering the residential rental market. It is a trend that has emerged in the past 10 years with private equity firm replacing small individual investors as the owners of rental accommodation.
It makes interesting, and negative reading for first time buyers and renters. For New Zealand is it a case of ‘better the devil you know’?
Managing Director, Barfoot & Thompson