Dear Prime Minister Jacinda Ardern,
Over the past (almost) four years your government has, at various times, described the property crisis as either a shortage of supply or a crisis of affordability.
You and your ministers have announced and/or implemented a series of initiatives to address these problems with the most recent being a suite of measures to reduce the activity of property investors.
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With all due respect, none of these measures will achieve what you hope of them because they have all misunderstood the nature of the issue and the way in which the property market works.
If you’re open to other views, I invite you to consider the following:
1. Home ownership should be the primary focus of your government.
While poverty, crime, homelessness, community participation and general wellbeing are all worthy aspirations, they all pale into insignificance against the goal of home ownership for every Kiwi. Why? Because almost all of the social issues associated with these other concerns are resolved when people own their own home. Indeed, nothing promotes greater community participation than a society in which the maximum number of people are homeowners.
2. You can’t control house prices.
The housing policies of successive governments, both here and around the world, have been grounded on the rocks of their attempts to bring house prices under control. It can’t be done. That’s not my opinion – it’s the evidence of over 40 years of history of the New Zealand housing market. If your goal is to reduce or reverse house price inflation, the market will beat you and you’ll have needlessly expended political energy and capital on a battle that you can’t possibly win.
3. Nor do you need to.
If your concern is about the affordability of housing, that issue has resolved itself over the past 30-odd years without any assistance from any government. That may sound unbelievable given that house prices have increased exponentially over the same period – but it’s true. As house prices have increased, interest rates have decreased, and it now actually takes considerably less of the average Kiwi families household income to service a mortgage than it did in the late 80s and early 90s – and only marginally more than it did in 2001. Mortgage affordability isn’t your major issue.
Prime Minister Jacinda Ardern has committed the Government to titling the playing field towards first home buyers. Photo / Getty Images
4. Capital growth is a good thing.
According to the 2019 Swiss-based Research Institute, Credit Suisse, New Zealand is now the world’s fifth richest country. The same report also noted that our wealth is more evenly spread than comparable nations and that it is largely based on property ownership. This comes as no surprise to those of us who understand the market but should be a wake-up call to those who want to improve the lot of all Kiwis – particularly when it is coupled with the realisation that mortgage affordability has come down, dramatically, over the past 30 years. Capital growth in the value of our houses increases our wealth, is evenly spread, and is actually easier to achieve than it was 30 years ago.
5. The major barrier to home ownership is the deposit.
While housing supply, foreign investment, property investment, Ghost Homes, and Capital Gains taxes are fun topics for talkback radio, none of them are the reason some first-home buyers have been closed out of the property market. If you truly want to get more Kiwis into homes, instruct the Reserve Bank to immediately remove its failed loan-to-value-ratio restrictions and leave the level of the deposit as a matter for the banks to negotiate with their customers based on their ability to service a loan. This single act will rebalance the market within 18 months and will address issues related to supply because the market will respond to the additional demand.
6. Focus on aspirational policies rather than punitive measures.
Right now, you have a once-in-a-generation opportunity to do things that previous governments couldn’t or wouldn’t do. First-home buyer deposit underwrites, rent-to-buy and lease-to-buy schemes, shared equity programs, and even a re-invention of the old Family Benefit Home Ownership scheme are all initiatives that are worthy of your investigation and investment – and which will get Kiwis into their own homes.
I may not have always been your biggest supporter, but I’m willing to help if you’re serious about making a difference. If you have the courage, this could be your enduring legacy.
Best of luck,
Ashley Church
– Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
