In an interview on The Nation, Nick Smith said he wants to make houses more affordable without actually making them cheaper. Hayden Donnell weighs in, with the help of Ben Thomas, on the two contradictory versions of the Housing Minister.

Here’s a list of things worth $1 million:

1. Three black market kidneys
2. Two private islands in Panama
3. One house in Auckland

It’s a bad time to be an Aucklander who doesn’t already own a home. For first home buyers, opening the Property Press has roughly the same emotional effect as repeatedly watching the scene in Old Yeller where Old Yeller dies.

For others the situation is more dire, with constantly rising rents forcing families to live in uninsulated garages, cars, and other exceptionally shitty places.

Housing Minister Nick Smith understands. He wants to appease younger and poorer voters by making housing more affordable.

But he wants to do it without actually lowering house prices, which would upset a horde of elderly homeowners, who are swaying their way through the longest, most debaucherous property boom in New Zealand history, drunk on the nectar of billion-dollar-a-year price rises.

It’s an impossible task.

On Saturday, Smith came up with an innovative solution: becoming two Nick Smiths.

In an interview with Patrick Gower on The Nation, Bad Smith appeared first, comforting homeowners fearful their endless property bacchanal may be winding down.

“I want house-price inflation in single digits,” he said, in response to a question about whether he wants house prices to fall.

“If you ask me what the objective of my policy, both in Auckland and throughout New Zealand, it’s for house-price inflation to be in single digits.”

Almost immediately afterward, the Housing Minister’s brain slithered out of his body to be replaced by a better version of itself.

“In 2014, just before the election, you said – and this is when the housing multiple was seven – you said your goal was to get it down to four,” Gower said, searching for assurance that was still the Housing Minister’s position.

Good Smith leaned in to reply, gleaming under the coat of his new skin.

“Yeah, I think, long-term.”

It’s literally impossible for one man to hold both those views at the same time. The housing multiple in Auckland is nearly 10. Even if house prices don’t rise at all, household incomes would need to go up more than 200% – from $76,000 to $250,000 – to bring a million-dollar home down to a housing multiple of four. If wages and salaries keep going up at their current rate, that could take roughly 50 years. But single-digit house price inflation could mean 9%, in which case it would never happen at all.

It’s now been a month since Green leader Metiria Turei was flayed alive for committing the cardinal political sins of making sense and telling the truth about house prices. But her wild claim that homes need to cost less than King Tutankhamun’s tomb to be affordable was at least a viable position for a human mind.

Smith is at war with himself.

He wants to figure out how to appeal to the huge block of homeowners, many of whom are natural National voters, and would weep bitter tears if the housing bubble were ever to burst.

But he has to keep up the appearance of dealing to the housing challenge (read: Earth-rending, Four Horsemen of the Apocalypse-summoning cataclysm) he’s conceded could be happening.

And so he has to split himself in half; one Nick telling those locked out of the housing market the Government is looking out for them; the other reassuring his most reliable voters he’s on their side. One Nick saying he’s doing his best to fix a crisis; the other whispering he’s not actually going to do that much at all.

– additional reporting Ben Thomas

The housing minister insists the government is limited to getting ‘the incentives’ right. But there’s plenty more they could do. And there’s only one Auckland mayoral candidate with a policy solution, writes Geoff Simmons.

The average price of a house in Auckland is predicted to pass $1m when official figures are released later this week. In an interview on TV3’s The Nation over the weekend housing minister Nick Smith (dubbed by Paddy Gower as the “Million Dollar Minister”) pointed out that the government doesn’t control house prices, and claimed that all they could do was get the incentives right to build more houses.

The housing minister appears to have abandoned his previous housing affordability goals. He wants to see housing prices return to single digit inflation and not fall. This means that the only way to return housing to affordable levels is for incomes to grow faster than house prices. Realistically this will take decades to happen; few of us will see affordable housing in our lifetimes.

When questioned on the persistent issue of land banking he claimed he was doing all he could within the law. The fact is that the government, and even Auckland’s mayoral candidates have powers that they could use to reduce land banking, if they chose to use them.

What is land banking?

To calm house price inflation the government’s focus is on getting more houses built. However, some of their Special Housing Areas are still lying empty and undeveloped. Minister Smith pointed out the government can’t force a land-owner to invest in a housing development. In other words they are powerless against a practice known as land banking.

If the price of land is increasing quickly, it can be more profitable to not develop it. Instead the owners just hold on to the land and wait until the price of the land rises further; a practice known as land banking. If there is demand for development and enough people hold on to their land then the price of the land is certain to rise.

The only way to break this cycle is to stop the price of land increasing quickly. One way to do this is to allow more development on a given parcel of land, which has been achieved in some areas through the Unitary Plan. But there are other ways.

Comprehensive capital income tax

A capital gains tax might help reduce land banking a little bit, but not much. The current bright line test hasn’t stopped people flipping houses quickly; they are still making a profit the only difference is now they are paying a bit of tax on it. We have seen similar results with capital gains taxes overseas failing to prevent housing bubbles.

Instead the Morgan Foundation has proposed a Comprehensive Capital Income Tax (CCIT). This would treat all investments in the same way as a bank deposit. For investments that aren’t generating a taxable return, such as vacant land, the investor would be taxed the same amount as if they had the value of that asset in a bank deposit. Paying a CCIT would reduce land banking by providing an incentive to make the most efficient use of that land immediately, rather than hold onto it waiting for untaxed capital gain.

A land tax would have a similar impact as the CCIT on land banking. But why should we only require land to be used efficiently? Don’t we want the same for all assets owned by New Zealanders?

Compulsory land acquisition

Economist Arthur Grimes recently recommended using the Public Works Act to acquire land for housing development. In fact he suggested using the difference between the price paid in compensation and the eventual market price of the land to pay for the infrastructure needed to develop the land.

This would be an extreme measure, an erosion of private property rights that would be certain to raise the hackles of the ACT Party and upset core National supporters. A tax as described above would be less disruptive in that respect, but compulsory land acquisition is an option nevertheless. We use compulsory land acquisition for key infrastructure like roading, so why not housing? The question we have to ask ourselves is whether housing is a right, a fundamental part of our infrastructure, or is it an investment to make money off?

Auckland’s mayoral candidates

Even Auckland’s mayoral candidates could help nudge land bankers to develop their land, but only one candidate has a policy that would achieve this. The youngest of the field, Chlöe Swarbrick, proposes shifting the rates calculation formula entirely over to land value. This would mean that a patch of empty land would pay the same rates as the house next door, providing a strong incentive to develop the land.

In short, the housing minister has plenty of tools at his disposal to deal to land banking. His government just chooses not to use them.

Geoff Simmons is an economist at the Morgan Foundation. This post originally appeared on the Morgan Foundation blog as “How Minister Smith Could Deal with Land Banking”