Over the 15 or so years that I’ve been commentating on the New Zealand property market I’ve been an outspoken critic of many of the housing policy initiatives introduced first, under National and more recently by the Labour-NZ First Coalition. I haven’t taken those stances to be obtuse – I question policy because 35 years of experience in the residential property market usually allows me to see the obvious consequences of policy ideas in a way which governments either can’t, or choose not to, understand.
There have been many such policies in recent years – but for me, there are five nominees for the award for being particularly pointless, unhelpful or downright dangerous. These are:
1. The Loan-to-Value deposit restrictions
My objections to these pernicious and stupid rules, which were introduced in 2013, are well known but bear frequently repeating. The LVR restrictions were introduced, not by the then National Government, but by the Reserve Bank with the grand claim that they would stabilise or even reduce house prices. They failed, completely, to achieve this objective and house prices continued to increase strongly over the following few years. Instead, their introduction led to what is, in my opinion, the single biggest problem facing the housing market – the “deposit affordability” crisis in which thousands of first home buyers, particularly in Auckland, have been closed out of the market because they can’t put together a large enough deposit.
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2. The Foreign Buyer Ban
For years we’ve heard that foreign buyers were pushing up house prices but the number of Kiwi homes purchased by foreign buyers prior to the ban is small - just 3 percent in 2017, according to Stats NZ. But the Labour Party wasn’t about to let the facts get in the way of a good story and they promptly enacted a buyer ban just 12 months after coming into power. A year later, headlines were celebrating the impact of that ban – an 81 percent drop in foreign sales over just 12 months. But what wasn’t being so clearly reported was that the drop was 81 percent of that original 3 percent - or about 2.5% of all market sales. The foreign buyers ban didn’t make a jot of difference to house prices, and if there was an award for a completely pointless policy, this one would surely take it out.
3. Ring-fencing of property investor tax losses
It wouldn’t be unreasonable to say that much of the current Government’s policy work has been less about fixing the housing market and more about punishing those who are demonised by the left, in an effort to secure votes. The recent ring-fencing of tax losses is such a policy. In a nutshell, the policy ignores international tax practice and treats the taxation of property investment differently to any other form of business activity – but not for reasons that have anything to do with logic or fairness. The changes target mum and dad investors and the punitive financial impact of the changes will be substantial and, while it’s too early to measure the effect of this policy, I stand by my predictions that it will dampen investor activity in the rental property market at precisely the time when we need more rental units than ever before.
4. Changes to the residential tenancies act
There have been a substantial number of tenancy law changes and new compliance requirements introduced by the current Government – too many to list. I include them here not because some of them aren’t worthy but because the speed at which they are being applied, and the costs associated with their introduction, mean that they will inevitably further increase the cost of renting in New Zealand. Improving the lot of tenants is a worthy cause – but must always be weighed against the cost of those reforms to the very people you’re claiming to wish to protect.
5. KiwiBuild
Arguably the flagship policy of the current Government, KiwiBuild came in with bold claims that it would lead to the construction of 100,000 new homes within 10 years and would bring down the cost of housing. Ultimately it achieved neither, and within two years the policy was gone – a victim of confused objectives and a lack of understanding of how the property market works.
- Ashley Church is the former CEO of the Property Institute of New Zealand and is now a property commentator for OneRoof.co.nz. Email him at [email protected]
