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ANALYSIS: After three and a half years of broken promises and non-compliance, Prime Minister Jacinda Ardern will attempt today to tackle one of the greatest challenges of her tenure.
Unlike other challenges that Ardern has overcome, including the Covid-19 pandemic and the March 15 terror attacks, housing is a problem that runs along multiple political lines and has been festering for decades.
But yesterday afternoon, Ardern was already suppressing expectations of what her government can do to achieve what she and Finance Minister Grant Robertson have called a “sustained moderation” in house prices.
He also made it clear that the government “would explicitly aim to divert the balance from real estate investors to first-time home buyers.”
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“It will take time to change all of this, and sadly, there is no silver bullet,” Ardern said. His comments, made in the Beehive on Monday, were an attempt to manage expectations, following the political disaster that was KiwiBuild.
In the focus groups of the main parties before the elections, the term “Kiwibuild”, the promise of Labor to build 10,000 houses a year, was synonymous with failure. Not even 1000 houses have been built since 2017.
Unlike March 15, Covid and Whakaari / White Island, the housing crisis has long been anticipated. But successive governments have not had the political courage to tackle the problem by seeking politically unpleasant solutions.
Today, when Ardern announces its housing package, the nation will see how much appetite it has for those kinds of housing policies.
The first and most unpleasant solution to the crisis is a capital gains tax. Expect this debate on capital gains to resurface today.
Like all other solutions to the housing crisis, it will not be effective on its own, but more than any other policy, a capital gains tax (CGT) has become something of a political symbol of the housing crisis. living place.
This is largely due to the Labor Party, which campaigned on the tax in 2011 and 2014, and veiled in 2017.
ROBERT KITCHEN / Things
“It will take time to change all of this, and unfortunately there is no silver bullet,” Ardern says of home prices ahead of Tuesday’s big announcement.
The party constantly connected him to housing, but intelligently failed to propose it as a definitive solution to the housing crisis, a detail that is often lost.
Although generally promoted as a method of curbing demand, the tax is implicitly about fairness. The data shows that homeowners make, on average, around $ 300,000 in profit each time they sell a property.
Ardern has ruled out a CGT under his leadership, but is covered in the “bright line test,” which is essentially an income tax paid on gains made on property bought and sold in five years.
The original bright line proof was presented by National, which was also against a CGT.
National’s story with the bright line test should provide some political cover against the opposition’s accusations of stealthily introducing a CGT.
The smart money is in Ardern extending the test of the bright line from his current five-year tenure. The Government has admitted that it has requested advice on what to do with the test.
The big question is how long the test will take. Extending the tax for 30 years, the length of the average mortgage, could fundamentally change the investment equation for many real estate investors and essentially turn the test into a CGT in all but name.
Investors are clearly the target of whatever reform Ardern, Robertson and Housing Minister Megan Woods announce today.
Other possible proposals are to change the rules to ensure that investors cannot deduct the interest paid on their loans from their tax bill and to extend the protection rules.
Currently, an investor can offset losses on one of his properties with tax paid on income from other properties. A rule change would stop that, forcing investors to carry those losses, a change that could curb speculation.
In his post-Cabinet press conference on Monday, Ardern said he would also seek to increase the supply of homes.
Outside of the budget, there is little the government can do to build more houses on its own. But last week, Woods said the government could consider investment rules that encourage foreign capital to enter New Zealand to build large-scale rental developments.
That would mean that more foreign capital would be used to build large apartment blocks for rent, ideally at affordable prices.
Politically speaking, when policy “sticks” are advertised, it also helps deliver “carrots.”
In recent weeks, Ardern has spoken cryptically about “encouraging people to seek alternative investments that contribute to our productive economy.” This could mean incentivizing people to invest in more than just housing.
One option would be to provide tax breaks for income deposited with Kiwisaver, encouraging this as a form of investment and, in theory, funneling the money away from the property.
Ardern will not fix the house today, not even this year. You’ve already said that you don’t want house prices to drop.
That means, aside from raising median income from roughly $ 50,000 to $ 150,000 and bankrupting nearly every employer in the country, all Ardern has really promised is to keep home prices stable enough that wages will eventually catch up. If property prices stabilized tomorrow, it would still take a long time for median income to recover.
The real test today will not be what Ardern announces, it will be to see what he can get away with politically.
With house prices rising in all regions (the national median was $ 525,000 in September 2017, now it is $ 780,000), the crisis has captured an ever-widening swath of voters.
With about half a million dollars now needed for a family of three to overcome the deposit hurdle, more families will require something bold about housing that could have been anathema to them a decade ago.
It’s quite possible that the political equation that made bold housing measures so impossible a decade ago has now changed.
