COMMENT: Since coming to power in 2017 the Labour has been at war with landlords. Yes, I know that statement will offend some – and others will claim that it’s an exaggeration – but it isn’t.
The measures which this Government has introduced to undermine landlords since 2017 are in the best (or worst) traditions of classic socialist ideology. These measures have included rent controls, the removal of the ability of landlords to evict troublesome tenants under all but the most extreme of conditions, major changes to the way landlords are taxed which differ from other forms of business, significant new costs to meet new property standards, and the imposition of one of the worlds most aggressive capitals gains taxes (in the form of a 10-year brightline test which is pitched at the marginal tax rate of the owner).
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So make no mistake, this is war. And like any prolonged war, it is pitched, and won, battle by battle, skirmish by skirmish in a process in which a defeated enemy might soldier on for a while, but eventually surrenders.
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Surrender in this war is characterised by landlords finally giving up and leaving the market – which, in socialist ideology, is seen as a win because surely these properties are being sold to long-suffering first home buyers, thus restoring the balance to where it should be.
That’s the theory, anyway, but it isn’t what happens. What actually happens is that the pool of available rental property reduces. There are three reasons for this:
1. Our population has been growing strongly for the past 15 years and while our doors are currently closed, it’s reasonable to assume that they will open again in the future and that the number of Kiwis – new and old - will continue to increase.
2. A census measure called “average household occupancy” tells us that fewer Kiwis now live in an average Kiwi home than did a generation ago – and that number is continuing to drop – which means that, even if our population was static, we would need more homes (rental and occupied) just to stand still.
3. We know how many Kiwis have chosen to rent, rather than own, going back around 100 years. Other than a blip in the 1980s and 1990s, that figure has stayed remarkably consistent at around 40% of the population for a century and it’s reasonable to assume that it will continue at around that level even as the population grows in real terms (which means we will need more rental homes).
I know these numbers aren’t popular with the bright-eyed idealogues of the left, but they’re factual and inescapable and give the lie to the idea that getting rid of property investment will somehow “fix” the market. It won’t.
What will happen, instead, will be that the growth in the number of available rental properties will slow, stagnate, or even reverse; that the cost of renting will increase even more quickly than it’s been doing since this Government came to power; that the Government will have to step into the breach and build thousands of new rental properties to meet the additional demand; and that a crisis which was entirely avoidable will consume the rental market within just a few short years.
Meanwhile, there’s also another massive impact looming as a result of these changes – and this one hasn’t been talked about much. Over the past 50 years a generation of Kiwis have been making provision for their own retirement in the recognition that the basic stipend provided by the state won’t be nearly enough to meet their needs when the time comes. Yes, these people have invested in a variety of different things to build their nest egg, but hundreds of thousands of them have invested in property because it has been easy and has given them some certainty for the future.
Many of these people are privately insured (reducing their impact on our health system) and continue to spend within our economy long after they retire. Yes, some of them will switch to investing in other enterprises – but a very large number (probably the majority) have neither the skill nor the fortitude to invest in anything other than property and people that would have entered the property market will instead, become a burden on the state over time.
No doubt smarter people than me will calculate the potential impact of this on the economy – but I think I’m safe in assuming that the figure will run into tens of billions. All in the name of ideological point scoring.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
