With a date set for this year’s general election and the parties entering campaign mode, this year’s Budget will be watched closely, and housing issues will be closely monitored.
Earlier this month, the Prime Minister said there would be no “lolly scrambles”, prompting Labour leader David Cunliffe to say the government was doing nothing to fix underlying problems in the New Zealand economy.
Cunliffe at the time declined to say how a Labour-led government might increase spending, on the basis of not being privy to the same level of economic information as the government.
But there is some information all of us - from aspiring ministers of finance, market observers, property developers, homeowners and renters who would like to be homeowners - have access to. We all know that mortgage interest rates are on the rise and could reach the pre GFC rates of 8% over the next two years.
The move in the Reserve Banks’s Official Cash Rate last month was significant, if only for the fact that it was the first increase since March 2011, a month after the Christchurch earthquakes.
At 8.25% in July 2007, the rate’s descent over the subsequent seven years coincided with a period of reduced building consents. But just because we were building less houses, did not mean we were having less babies nor were there fewer people migrating to New Zealand. There was also the devastating series of earthquakes in the Canterbury region that led to the demolition of about 8,000 houses.
Simply put: The cumulative effect has been more people plus fewer houses, equalling a housing shortage. So, what next?
Several political parties have once again proposed a Capital Gains Tax on property and a restriction on foreign ownership of houses. But these approaches fail to address overall population growth, increased migration and trends to smaller housing.
Australia’s restriction on foreign ownership to new builds was supposed to reduce demand and, as a consequence, the rate of price rises for existing houses. But house prices in Sydney are still rising at 10% per annum and the government there is now undertaking an inquiry into the effect that foreign ownership has on housing affordability.
Any political response to New Zealand’s situation should resist the temptation to make things complicated and acknowledge that it is simply a case of supply and demand. On this basis, the current government and the post-election government would do well to ensure local authority processes such as building consents are as efficient as possible so the housing shortage can be rectified sooner rather than later. With more building consents issued in the 12 months to January 2014 than any 12-month period since late 2007, any risk of bottlenecks needs to be addressed. Improved efficiencies in consent application through to build completion need to be identified.
These are positive signs already. The Government’s Housing Accord with Auckland Council has seen 22 Special Housing Areas created since October 2013 and almost 3600 new sections and consents created.
But there can be no resting on laurels. The current government and post-election government should remember that more than 90% of New Zealand businesses are SMEs of up to 20 employees that are, typically, funded by the equity in the family home. Unless housing becomes more affordable, it will be more than just the kiwi dream of owning a place to call your own facing extinction.