Over the past 30 years, here in New Zealand we’ve developed a banking system, a tax system and government policies which lock future generations out of housing and encourage investment into a sector which offers little for economic growth.
It’s wrecking our economy and it’s robbing our young people of hope.
New Zealand was once a property-owning democracy, where a decent job allowed you to own a home and take a stake in your community. The other day, I got a text from a friend who had bought her first house. She was delighted. It was a huge moment for her and her family. She’s in her mid-40s and has had a successful career. She’s one of the luckier ones.
But once the elation of getting on the housing ladder wears off, she’ll face paying off hundreds of thousands of dollars at crippling interest rates.
In the United States you can fix a mortgage for 30 years. A recent New York Times article described the system as a one-way bet for homeowners, “because most US mortgages can be paid off early with no penalty, homeowners can simply refinance if rates go down. Buyers get all of the benefits of a fixed rate, with none of the risks.”
Conversely, in NZ most of us wage slaves with mortgages that are essentially shipping off shed loads of cash to Australia – where our major banks are headquartered - in return for our labour. In just one year, to September 2023, the interest - just the interest - on residential mortgage lending in New Zealand totalled $16.5 billion.
Nearly 90% of that is going to the big four Aussie-owned banks: ANZ has 30% of the home lending market, ASB, 21%, Westpac, 19% and BNZ, 17%. KiwiBank has only a 7% market share in home lending. So, the market study into personal banking, released by the Commerce Commission in March, shows the big four are creaming it at our expense.
Those four banks are in the top quarter in the world for profitability while offering vanilla-type products (you’d expect low returns for low risk, but they have the best of both worlds). KiwiBank, according to the Commerce Commission, is best placed to be a disruptor but lacks the capital to take on the big four.
Perhaps a Mixed Ownership Model – floating just under half the shares, as John Key’s National government did with the energy companies and Air New Zealand – could allow the capital raising KiwiBank needs to compete? Surprisingly for a centre-right government, there seems to be little appetite for that, or for deepening capital markets at all.
Buying investment properties creates almost no jobs and creates little wealth for anyone other than for those with the leverage to outbid someone who wanted the house for the old-fashioned reason of living in it.
So, what do we do? We encourage more of it! The cash-strapped government is spending close to $3 billion on tax breaks for landlords over four years. They can (again) deduct interest payments from their taxable income.
This makes both our housing problems worse: it locks out more first-home buyers and encourages more investment in unproductive assets, instead of existing businesses or start-ups that might create jobs and wealth.
The government claims it will put “downward pressure” on rents. In theory, yes. But do you think landlords will actually reduce rents? Me neither. In the 25 years I’ve covered politics, I have never seen a bigger public policy failure than housing. Successive governments, lacking the courage to do anything meaningful, have deeply failed New Zealanders.
Labour has now arrived back at the position of gingerly discussing a capital gains tax. But the life cycle of this policy formation usually ends with Labour losing its courage in the heat of the political battle. If they couldn’t do it when they had an outright majority between 2020 and 2023, will they really muster the courage now?
And in case you think a capital gains tax is the preserve of the swivel-eyed loons of the economic left, let me introduce you to the International Monetary Fund. The IMF issued a report card on the New Zealand economy after a recent visit. “New Zealand would benefit from a more efficient, equitable and sustainable tax system,” the IMF said, adding that reform was needed to promote investment and productivity growth. To achieve these objectives, reforms should combine comprehensive capital gains tax, land value tax and changes to corporate income tax.”
When the Labour Party is to the right of the IMF on tax and housing policy, NZ definitely has a blind spot. We are damaging our economy, our society and our wellbeing. We have an attitude and a policy mindset that is so obviously deranged when viewed from the outside, but we carry on as if it were normal.
We need to open our eyes.
Guyon Espiner is an investigative journalist and presenter at RNZ. His new TV and radio interview show 30 With Guyon Espiner launches in April. He fills in for Duncan Garner, who is taking a couple of weeks off.
