Fran O'Sullivan: Time to make housing tad less attractive to investors

City workers are finding their pay packets increasingly gobbled up by rising rents. Photo / Michael Craig

It's fast reaching the point where many New Zealanders won't be able to afford to buy or rent houses in the cities where their jobs are, without leading a "penny-pinching" existence.

This is a big issue facing the economy and not enough attention is being devoted to making sure our citizens - not the foreigners - are put first.

It's a conundrum Reserve Bank governor Graeme Wheeler is trying to address with his signal that the bank now has the residential property investing sector in its sights.

But typically, the sector went into paroxysms of fear at the notion that property investors - particularly those buying five or more residential houses - may face commercial interest rates or higher loan-to-value ratios in future.

Economists have been quick to point out the proposed solutions may not work. They say investors will just circumvent any new rules by warehousing their investments through trusts, as if evading the rules is a national sport (which it is).

How depressing.

That's not the debate they should be leading.

The reality is property lobbyists and economists are unlikely to find themselves in the shoes of those who are having to spend far too much of their pay packets on mortgages or rents to stay close to their jobs.

Instead of finding fault with Wheeler's intentions, they could come up with suggestions to make the governor's plan to take the steam out of the market work.

It's not as if there haven't been restrictions before.

When I bought my first house, residential properly investors faced commercial rates and paid higher interest than the home dwellers for loans to underpin their rental investments. They also had to paid stamp duty on property acquisitions and had to pay tax if they sold properties within 10 years of acquisition.

These are the remedies that are now being applied elsewhere by central bankers and governments to slow down property-price escalation as well as putting restrictions on foreign investment to ensure their own citizens' housing needs are put first.

New Zealanders have drunk the Kool-Aid when it comes to the mantra that competition in the 21st century is between cities, not countries.

Cities are where the interesting jobs are. Case in point: Auckland, which is now the headquarters for most of New Zealand's larger companies and site of big manufacturing plants; a creative and exciting multicultural city and magnet for talent.

The house-price boom has made many Aucklanders - particularly those who have been in the market for years - rich. But it's largely on-paper wealth. It's resulted in property being the talking point du jour at far too many dinner parties and barbecues.

But what's the point of so many of us congregating in Auckland if house prices continue to escalate well ahead of pay packets?

The Economist's recent interactive chart shows house prices rising in 18 of the 23 economies the magazine tracks. As the Economist notes, houses are at least 25 per cent overvalued in nine countries - including New Zealand, which is near the top when it comes to unaffordability.

When it comes to investing for a rental return from housing, New Zealand is not a great bet.

In Auckland's case, demand will also continue to be stoked through immigration.

The unpalatable truth is that it is very difficult to bring a boom market to heel until investor sentiment shifts. Much of that sentiment here is predicated on future capital gains.

Reduce the potential for capital gains and an inflexion point will be reached sooner.

That's why some frank talking on house prices is well overdue.

What's also overdue is some recognition that this is one area where national interest and self-interest do not intersect.