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COMMENT: How to fix the housing crisis

Dealing with the housing “crisis” doesn’t need rocket science, just a clearly articulated set of steps and fast action, argues property commentator Ashley Church.

Thursday, January 10th 2019, 8:00AM 1 Comment

It seems that everyone has an opinion on how to fix the housing market. Some favour intervention, while others believe that the market will “sort it out” on its own. In the majority of cases, these solutions are based on an assumption that the introduction of their pet initiative or policy (or decision not to act, as is the position of the free marketers) will solve the problem.

In my experience such simplistic solutions are doomed to failure. Either because they lack an underlying understanding of the real nature of the housing crisis. Or because they result in unintended consequences which simply end up creating a new set of problems in place of the ones they’re trying to solve.

So what are we actually trying to achieve? What’s the nature of the “crisis” we read and hear so much about? There are multiple views on this. But, for my money, there are three ‘guiding’ objectives which should underpin housing policy:

• We need to dramatically increase supply to start making a dent in the 100k homes that we need right now (particularly in Auckland)
• For every ten people who need housing, four will live in a rental so we also need to increase the stock of rental housing
• Home ownership rates have dropped significantly over the past 20 years so we need to fix this by doing everything we can to get first home buyers into homes

That’s it. No rocket science – just a clearly articulated set of things we need to achieve as quickly as possible.

Now the solution:

1. Start with the premise that capital values should be protected. Apart from the fact that no one (other than a few canny property investors) is going to invest in a market where values are in free fall, the value of our homes also underpins business investment, personal spending in the economy and the ability to invest further in housing. That means solutions which promote ideas to “crash” property values need to be dismissed out of hand. This must be the primary criteria by which all other policy is measured.

2. Increase LVR restrictions on existing dwellings. Yes, you read that right. If we agree that the objective is to dramatically increase supply we need to discourage the purchasing of existing dwellings for occupation or investment. This won’t affect those who already own a home with reasonable equity. But it will encourage first home buyers and investors to look seriously at buying new dwellings. Which brings me to the next step…

3. Completely remove LVR restrictions on new dwellings for first home buyers. Doing so will not only send a clear message to first home buyers in favour of building, it will also remove one of the biggest obstacles stopping these folk getting into the market. No more need for massive deposits or “the bank of mum and dad”. All they’ll need will be a decent household income and a good credit rating.

4. Abandon plans to punish Investors. The Coalition Governments plans to hit investors in the pocket may play well to a section of their support base. But they fly in the face of the things that we need to do to solve the housing crisis. Other than a drop in LVRs, investors don’t need big new incentives to invest – just the preservation of the environment which already exists. This means shelving plans to introduce a capital gains tax on Investment property and retaining transferable tax losses, either in their entirety, or at least for those who invest in new dwellings.

That’s it! No doubt these ideas could be refined and tweaked. But introducing them, even in this form, would address the objectives outlined above and quickly change the behaviour of the market in a way which would lead to a big lift in the construction of new dwellings.

That said – will they be floated as policy by either of the main parties? Don’t hold your breath.

Tags: house prices housing market housing shortage investment landlords LVR property investment property values tax tax working group

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Comments from our readers

On 10 January 2019 at 11:15 am Sooky1 said:
Where is and what is this so called Housing Crisis???? as far as we can make out there is no Housing Crisis and if there is it is because almost all people have not saved any money for a deposit to buy their own home, there is another crisis in NZ, where certain people breed like uncontrollable flies, don't have any means to provide Food/Clothing and Shelter for these children that they have bought into this World, then put their hands up and say we don't have anywhere to live with our 2-3-4-5 children now that is not a Housing Crisis that is another sort of Crisis all over again, we have a Son In Law married to our Daughter they own their own home already, they have worked hard saved money and are now building a new home, they have had no problem whatsoever building their new home there was no drama they had no problem getting land or a builder where is the Crisis??? the Taxpayers of NZ own around 60,000 State Owned emergency houses I know this I've been a part of the maintenance crew reinstating them fit for habitation again for 40 odd years, the treatment of those houses is nothing short of disgraceful but no by all!!! we could and probably need another 500,000 State owned houses and it still wouldn't be enough because I've been involved within the system for so long experience has taught all of our crew's that people who live in State owned house their own children don't know any better, and they in turn live in and rear their children in a state owned house and there in lays the problem, most of these people demand that the "State" provides them with a house to live in for life !! and that case is backed up by those people they try to relocate up in Glenn Innes who have been living in the same house for 40-50 years and refuse to move!! where is this actual housing Crisis??

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 ▼7.65 ▼7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 7.29 6.59
SBS Bank Special - 7.14 6.69 5.99
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 ▼7.84 7.35 ▼6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - ▼7.24 6.75 ▼6.39
Median 8.64 7.19 7.27 6.65

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