Recently I was a panellist at an event organised by OneRoof where several economists and commentators gave their view of the property market and where it might go over the next 12 months. There was broad agreement on many things, but there were also a couple of topics where there was disagreement.
At the event, former BNZ chief economist Tony Alexander argued that, in light of the potential damage the coronavirus would do to the economy, none of the major political parties would want house prices to fall. He believed that the Coalition might take action to stimulate the housing market between now and the election in September – essentially reversing their behaviour of the past two years where their various initiatives have all been focused on trying to bring house prices down.
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The logic behind this prediction is sound. There are signs that the economy is in decline as the Coalition reaches the end of the positive economic conditions that it inherited from the previous government and the effects of its own growth inhibiting policies start to take hold of the economy. Left unchecked, this will lead to an increase in unemployment, a reduction in consumer spending, a further increase in the number of people awaiting a state house – which is already at record highs, a further deterioration in business confidence and a near flattening of GDP as the Government strangles growth through poorly considered policies.
On top of all that we now have coronavirus. I broadly agree with those who say that coronavirus has been hyped up – but it’s reached a tipping point where the economic chaos it will wreak is now real.
So for all of these reasons I can see why some might think that the Government would see a boost in house prices as a good idea prior to the election. Rising house prices directly impact middle New Zealand and improve the paper wealth of Kiwis – and the theory is that this would go a long way toward keeping these voters onside at a time when they might be considering giving their vote to National.
There are also a couple of precedents. Prime Minister Jacinda Ardern was prepared to kill off the prospect of a capital gains tax in the face of intransigence from New Zealand First and a probable voter revolt by middle New Zealand. And more recently, the Government reversed its own position on "roads v public transport" by announcing a $12 billion investment in roading and infrastructure – essentially dusting off the projects which the previous government already had underway and blatantly contradicting its own rhetoric around the evils of fossil fuels.
But, despite all of this, there are four reasons why (in my view) the Coalition won’t try and stimulate the housing market:
1. The Government actually has very little control over what happens to house prices – up or down. If it did, it would already have exercised that control to bring house prices down. The single biggest driver of house price growth is the market itself, which has defied government interventions for more than 40 years, and that isn’t about to change a few months out from an election. Yes, the Reserve Bank has some control through its ability to manipulate mortgage interest rates but the bank is independent of the Government and will do what it believes to be in the best interests of the economy.
2. Killing off capital growth is a pillar of leftist ideology. A reversal on this, after selling out on its ideological opposition to more roads and capital gains tax would be a step too far for many Labour and Green voters and the Coalition knows it.
3. The election itself. There’s a very well established pre-election trend in which housing markets flatten in the months prior to an election – probably due to market jitters. The Coalition will be well aware of this and will realise that, even if they were of a mind to do so, trying to stimulate capital growth at a time when history tells us it doesn’t happen would be a hiding to nothing.
4. The Coalition will liberally sprinkle your tax dollars into a series of election give-aways during this year’s budget – a move which would be far more consistent with their approach to date and would keep their core voters happy while also trying to buy the votes of middle New Zealand.
- 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]
