Fran O'Sullivan: Weak measures solve nothing

Prime Minister John Key at Hobsonville Point. Photo / Brett Phibbs

John Key's calculated punt to threaten land taxes on foreign investors won't solve the Auckland housing crisis.

It will play well among National's voting heartland. But it will not make home ownership more affordable for the many young New Zealanders who are finding it difficult to even get on to the Auckland housing ladder.

If the Prime Minister's steer is right - and he would have to be barmy to launch down this route unless he had good insight into yet-to-be-published Land Information NZ data showing how many non-residents have been buying up resident property since October 1, 2015 - it will turn out that offshore investors will feature among the drivers of house price inflation.Key is patently not barmy. But he certainly is politicking.

If he really wanted to bring the galloping market to a halt and house prices to a more sustainable long-term level, he would take note of the findings of a tax working group in 2010.

The group estimated that a 1 per cent tax on all land - not just land owned by non-residents - would immediately cut the value of land by 17 per cent.So why isn't Key even going to look at whacking domestic investors?

For starters, those domestic investors (let's just call them speculators as they are not buying houses for rental income but for tax-free capital gains) are among those who the Prime Minister has sworn repetitively for months now are among the main drivers of galloping house prices.

The speculators are those who have leveraged the burgeoning equity in their existing portfolios - gained by doing nothing more than holding on to residential housing stock - to finance more purchases.

And who can blame them; they have simply been obeying the current market dictate that 'if you want to succeed in business - buy a house in Auckland'.

Whacking foreigners with a land tax will not affect those offshore investors who believe that New Zealand prime housing and land estates are under-valued in the first place.

Many will be able to afford to pay the land tax and hold on to their investments. It will not stop domestic investors from padding their residential housing portfolios.

Neither will a land tax on non-resident investors address other key drivers of house prices: persistently high net immigration; land banking; Nimbyism (as in the strident opposition to Auckland Council's plan to allow two- to three-storey condominiums to be built in prime suburbs such as Remuera); or the rules that prevent the city expanding beyond its urban limits.

The Key Government needs to show some mettle. Here is where quick gains can be made:

• Expand the capital gains tax on residential investment properties so investors will get hit if they sell within 10 years of purchase - not two.

• Introduce legislation to give the Auckland Council more teeth to implement its plan. If it can't do it, appoint a commissioner.

• Abolish urban limits and clamp down on land banking by having Government valuers set reasonable sales prices and not allowing land-bankers to gouge developers.

• Ban foreign investment in existing residential housing while New Zealand housing is under pressure, with a sunset clause in the legislation to make clear this is a temporary measure. Foreign governments understand the concept of safeguards - just ask China. Does anyone seriously expect China or Korea will call foul if the New Zealand Government applies temporary measures so it can look after the needs of its own people first? Dream on.

• Address demand: Are we letting in too many immigrants?

• Address supply: Ramp up housing production.

Do more deals like the excellent Hobsonville private public partnership announced yesterday.

Such measures will inevitably be attacked as interfering in private property rights and anti-market.

But Key constantly works the political odds.

National's private polling has confirmed the party is still riding high. Insiders say on the basis of a recent poll of 1500 Aucklanders, National still enjoys 51 per cent voter support.

But the party's polling will also have identified growing unease among younger people - and middle-class parents who are trying to "help" their children into homes so they can enjoy the family way of life they had - that there is something fundamentally unfair going on.

This won't unduly worry some middle-income Auckland owners of middle-class housing stock who have become on-paper millionaires over the past five years on the back of the house price surge.

This wealth effect has sustained National's support among this voting cohort.But it will not be contained forever.

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