COMMENT: One of the great curiosities of the Kiwi housing market is the extent to which we appear to have collective amnesia when it comes to some of the key issues facing the market.
Witness, for example, the way in which we approach the question of what can be done to control house price growth. Not a week passes in which that question is not posed, in some fashion, and if the earnestness with which it is discussed by politicians, commentators, economists, and the media was any sort of guide, you’d think that, on each of these occasions, we were discussing it for the first time.
Except that we’re not. The same question was being posed last week, and the week before that, and the month before that and the year before that – going back decades. And always the answer remains stubbornly the same. House prices can’t be controlled. That’s not my opinion; it’s the evidence of the market itself. Despite 40 years of repeated attempts at interventions, not one of those interventions has made the slightest bit of difference to house prices. Understanding that, along with understanding that higher house prices are not the nub of the crisis, is the key to beginning to understand the market.
But that’s not to say that Government (or the Reserve Bank) can’t influence the market in other ways. Indeed, freed from the mistaken belief that they can control house prices, there are a range of positive things that both of these bodies could do.
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First, however, we need to collectively agree on what we’re trying to achieve and, for me, that’s crystal clear. The “real” housing crisis is that around 35% of Kiwis don’t own their own home and the most important task facing our country is to get as many of those people who wish to, into their own home as soon as possible.
Ashley Church: “The ‘real’ housing crisis is that around 35% of kiwis don’t own their own home.” Photo / Ted Baghurst
If we could agree on that, the range of things which we should be doing becomes much clearer and it has nothing to do with controlling house prices.
Here are five ideas to get the conversation started:
1. Focus on aspirational policies rather than punitive measures
Let’s focus on programs that will promote home-ownership. 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 investigation and investment – and which will get kiwis into their own homes.
2. Drop the loan to Value ratio (LVR) restrictions
Despite claims that these restrictions, which were first introduced in 2013 by the Reserve Bank, would bring down house prices and stabilise the property market – they have done neither. Eight years on the market is no more, nor less, stable and house prices have doubled on average. These pernicious restrictions serve no purpose other than to create an artificial barrier to home buying which closes people out of the market for no reason other than Reserve Bank hubris. Dumping them would give many kiwis a chance to get back into the market.
3. Drop the LVR restrictions on first home buyers
If the Reserve Bank can’t admit that it made a mistake with these restrictions then it could, at least, remove them from first home buyers. This would still assist in the main objective of getting home ownership up.
4. Limit the number of properties an investor could own
Limiting the number of properties that any single investor could own to (say) three and not making this policy retrospective ‘might’ change the complexion of the market over time. The policy would need to be carefully watched to ensure that it was contributing to an increase in home ownership and that it wasn’t leading to a shortage of rental accommodation – but conceptually, it could move the needle.
5. Put time limits on all housing market legislation
Putting time limits or periodic review clauses into all property market legislation, along with a competent regime for conducting those reviews, would allow Governments to measure the effects of various policies to determine whether they were assisting in the objective of increasing home ownership. In this way, legislation which may have had a purpose at the time that it was introduced could be retired once its job was done. This – rather than simply piling on new legislation without end - is the essence of true leadership
Not one of these initiatives would make any difference to house price growth – nor do they need to. If we can focus on creating a society where most of us own our own home, the rest will take care of itself.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
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