Fran O'Sullivan: Why won't Key act on housing?

Prime Minister John Key today suggested it is the Reserve Bank's responsibility to "have a look at the question around investors". Photo / Michael Craig

I reckon the Prime Minister is giving us baby boomers an even worse name by dismissing a proposal to reduce Auckland house prices by 40 per cent.

It's not surprising that well-respected economist Arthur Grimes has recommended building 150,000 new homes so that those who are not millionaires (which on paper includes a great many Aucklanders) can get into the Auckland market.

There's nothing magical about attempting to inject a pause - which is all that will occur until sufficient additional supply is added - to this speculative boom; 150,000 new houses don't just "magic up" overnight.

But for John Key to label Grimes' proposals "just crazy" is a nonsense.

What is crazy is the groupthink that has persuaded the boomer-dominated Cabinet to take such a long time to even think about killing off the speculative party let alone doing anything about it.

Most National Cabinet ministers and MPs are well invested in "real property". So are many of their counterparts from other political parties.

Like most of us who are "established" - that is those of us who bought into the housing market a decade or more ago - the MPs have seen their own on-paper wealth double.

Having rejoiced at the wealth effect, neither the MPs nor the rest of us want to take a financial haircut. Key is right on that score.

But it is a pretty crap society that pulls the ladder up on younger people or those less well off just because they want to preserve their new unearned wealth.

Grimes is a former chairman of the Reserve Bank. As he pointed out in the Herald's recent Saturday Business, the median house price was $1 million, up from an already too high level of $600,000 five years ago.

What he has suggested is not absurd. For instance, Hong Kong does not hesitate to pull the levers when house prices get seriously out of whack: ownership restrictions, aggressive stamp duties and Government-sponsored building programmes are all part of its arsenal.

But the Prime Minister's response was underwhelming when Quotable Value today predicted Auckland's average house value will hit $1 million by next year and revealed landlords are snapping up 46 per cent of the city's sales.

QV's Andrea Rush said the average value in Auckland now is $975,000 across the whole region.

"If the rate of growth increases as it is at the moment, we will have an average value of $1 million by 2017."

Rush said housing markets around the country are continuing to be driven by strong investor demand, low interest rates, rapid price growth in the Auckland market and strong net migration.

Key again duck-shoved the issue, suggesting it was the Reserve Bank's responsibility to "have a look at the question around investors".

What's notable is his Government will not slap investors with an effective capital gains tax, preferring a "bright line" test which is easily avoided by holding a housing investment for more than two years; refuses to introduce specific taxes to punish land bankers; and will not introduce rules to preserve the acquisition of existing residential housing for citizens or curb migration.

Key could pass special legislation to do this.

The question is why won't he.