Editorial: Taxes best way to fix housing problem

The volume of residential building work put in place grew a seasonally adjusted 15 per cent in the three months ended March 31, the biggest quarterly increase since September 2002. Photo / NZ Herald

Housing could be the big issue in the coming election. It has been a "sleeper" for some years as young couples seeking their first home have struggled at auctions against investors who look like new or recently arrived residents of New Zealand putting the capital they are required to bring here into real estate.

Winston Peters has a simplistic solution: only citizens could buy houses. The Green Party would be slightly less restrictive, limiting residential land sales to citizens and permanent residents. Trusts would probably circumvent rules such as those.

Labour would ban purchases of existing homes by people who do not already live here or plan to live here. That would make little difference. Just about all "foreign" buyers probably have a family member here or planning to be here for at least part of the year.

The Government is unwilling to restrict the demand for houses and insists the solution lies in increasing the supply. It has signed an "accord" with the Auckland Council to make more land available for housing and issue building consents more quickly. Finance Minister Bill English has a provision in the Budget he will deliver next month that he seems to think will improve the supply of smaller and cheaper homes.

He sounds particularly concerned that Auckland Council planning rules require apartments to be at least 40sqm and balconies at least 8sqm. "There is a bit much of a mentality that a small group of people in a council know what everyone wants and needs," he said in a speech. "Local body planners and councillors are not aware of the wider social and economic effects to their complex rules and procedures."

That is a bit harsh. It is not councils that are driving the trend to larger houses. When people build or renovate these days they go to the maximum permitted on their property. The modern preference is for big, expansive indoor living spaces rather than lawns and gardens outside. Patios, decks and concreted car bays are likely to cover much of what remains of densely subdivided urban sections.

At the other extreme, there must be a market for "shoebox" apartments. They are not cheap, considering how confined they are, and nobody has to buy them. But they sell. Mr English is right that there is no reason for the council to impose a minimum size on apartments, let alone balconies. But to remove such restrictions is unlikely to make housing more affordable.

In fact all of the Government's supply-side measures sound like a desperate attempt to deny that the problem is one of excessive demand. It is the demand for residential property as an investment that is driving prices ever higher. The supply of houses is quite adequate, just about everyone has a house to live in. But too many are renting because the price of ownership has risen far beyond an affordable ratio of average incomes.

That is the problem, as most people can probably see. Unless the Government can come up with a solution on the demand side of the market it is going to be on the back foot on this issue in the election campaign.

On one side it will face Winston Peters with his superficially popular demand restriction. On the other it will find Labour and the Greens suggesting less popular but more effective solutions in taxation. Both advocate a capital gains tax on residential property that is not the owner's primary dwelling. They might also stop losses on rental property being deducted from taxable income.

Until New Zealand adopts taxes such as these — quite common elsewhere — we will continue to deny increasing numbers of young families a stake in this country.

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