In Auckland, homebuyers could then afford to pay close to $1.5 million for a median-priced house, up from $1m, without increasing the share of their income spent on interest.
Everyone is forecasting net migration will drop, but what if it doesn't? Australia's job market needs to improve, the flow of foreign students needs to slow and the surge in working holidaymakers needs to stop, for net migration to drop back. There are few signs of those things happening.
There are also few signs Auckland's new-house shortfall will improve.
While the Unitary Plan is being finalised and the Government and Council cannot agree on how to fund Auckland's infrastructure, building consents have stagnated at an annual rate of just over 9000 since October and there is enormous uncertainty over the zoning rules for house building.
Auckland needs to build at least 15,000 houses a year to eat into its shortage, which may already be well over 50,000 houses.
Those scenarios could easily power Auckland house prices another 50 per cent higher over the next two years without debt stress rising, which would further brighten the halo effect on the rest of the country.
So what could Governments and voters do to stop that happening?
Tighten lending rules
The Reserve Bank could lower the 70 per cent loan to value limit for Auckland rental property investors to 60 per cent and extend the 70 per cent limit for Auckland investors to the rest of the country. It could also limit new lending to rental property investors to no more than six times the rental property's income and exempt new buildings from that rule. That would stop the leveraged buying of existing homes by landlords overnight.
Build, build, build
The Auckland Council could agree to a new Unitary Plan that allows more building outside the Rural Urban Boundary and a lot more affordable one and two-bedroom apartments in three-storey apartment buildings close to the CBD. The Government could kick-start this by commissioning dozens in Auckland and pledging to sell them on Kiwibuild-style to first-home buyers and investors, who would be exempt from the lending restrictions.
Remove tax incentives for landlords
As Treasury has previously proposed, the Government could remove the tax deductibility of interest payments by rental property investors and/or extend the two-year bright-line test for taxing property trader capital gains out to five or 10 years.
As the Tax Working Group also recommended, the Government could signal a tax switch where revenues from a 1 per cent land tax would be used to cut GST or income taxes.
Tax non-resident buyers
New Zealand could impose a stamp duty of 3-5 per cent and an annual land tax of 1-2 per cent for non-residents buying property here. This would bring us into line with Australian practice and not breach our trade agreements. It would also remove our outlier status of being the only destination in the developed world without a capital gains tax, stamp duty, land tax or restrictions on foreign buyers.
Incentivise local infrastructure investment
The Government could make it much more attractive for councils to invest in the infrastructure to underpin growth in housing supply and cities. It could allow congestion charging on Auckland's motorways to increase revenues to invest in public transport. It could also pledge some of the extra GST and income taxes from population growth to service the debt on infrastructure bonds issued to pay for council infrastructure.
