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Houses on Tinakori Road, Welllington (Photo: Getty Images)
Houses on Tinakori Road, Welllington (Photo: Getty Images)

BusinessMarch 23, 2021

‘It’s a drop in the bucket and it’s a leaky bucket at that’: Housing package underwhelms experts

Houses on Tinakori Road, Welllington (Photo: Getty Images)
Houses on Tinakori Road, Welllington (Photo: Getty Images)

It was supposed to be ‘bold’ government action, but experts say today’s housing announcement was more of the same marginal policy that fails to target the root of the problem.

Housing commentators and experts have labelled the government’s much-hyped housing package disappointing and unambitious following its unveiling this morning.

Initially billed as “bold” action by the minister of finance earlier this year, today’s package included increased caps to the First Home Products scheme, a $3.8b infrastructure accelerator for local councils, more barriers to property speculation and additional $2b borrowing capacity for Kāinga Ora.

However, Kiwibank chief economist Jarrod Kerr said the policy changes simply “tinkered at the edges”, and were not enough to address the systemic supply issues that have caused New Zealand’s house prices to soar beyond the reach of many.

“It was pretty disappointing to be honest. Some of the ideas are good, but the size is pathetic. It’s a drop in the bucket and it’s a leaky bucket at that.”

Kerr said the tool with the most potential was the $3.8b infrastructure accelerator, which is intended to help local councils create the necessary services infrastructure – plumbing, roads, power – to unlock remote land for property development.

“I think the idea is great; we need to get funding into councils to sort out woeful infrastructure and get it to areas that need to be developed. But the fact that it only got $3.8b means that it’s going to be ineffective – $3.8billion spread across all our councils is a rounding error.”

To take some of the heat out of housing demand and curb property speculation, the government announced an extension to the bright-line test – which requires investors to pay income taxes on profits from selling houses they don’t live in – from five to ten years. The IRD will also be phasing out a provision over the next four years that allows investors to deduct interest payments from their income taxes.

While Kerr said these new changes would indeed discourage property speculation, demand wasn’t the problem. It is already incredibly hard to speculate on property in New Zealand, he said.

“We’re already hitting investors. To flip property in New Zealand, you need a 40% deposit and you have to hold that property for five years or lose 39% of your gain,” Kerr said, referring to the top marginal tax rate for individuals.

“It’s actually very hard to speculate in New Zealand’s property market. But hey, it’s nice to have a bogey man to throw stuff at.”

The fact that the bright-line test excluded new builds was an important consideration to allow more resources and investment to go into the creation of new property, he said.

“That’s the one part of the demand side that I think they’re getting right. Rather than try to get rid of investors entirely, they recognise the fact that they’re the ones that do the development. Pouring more resources into new dwellings is incredibly important right now.”

Kiwibank chief economist Jarrod Kerr

Another of the key changes announced today was increases in the income caps and house price of the First Home Grant, which gives those eligible up to $5,000 for existing properties, or up to $10,000 for new properties. The income caps to access the grant will be lifted from $85,000 to $95,000 for single buyers, and from $130,000 to $150,000 for two or more buyers. In Auckland, the house price cap will be increased from $625,000 to $700,000 and in Wellington from $550,000 to $650,000.

Kerr said the house price cap changes, while not radical, were a step in the right direction that would allow more people to buy the most affordable houses.

“It’s better than nothing. The median house price in Auckland is $1m, but for a lower quartile house, the cap is better than where it was.”

However, housing researcher and advocate Jacqueline Paul says that even with new caps, the changes will do little to address housing inequality and allow the lowest earners, particularly Māori, into home ownership.

“A high proportion of Māori live in private rentals and social housing and there has been no ring fencing of funding for Māori allocated,” she said.

“Ardern spoke to low quartile measures from Core Logic but what tends to happen is that median income for Māori is lower than the average, making homeownership far beyond reach. There needs to be a stronger focus on housing security as opposed to the colonial tool and British model of homeownership.”

While Paul said the overall package was not exciting or ambitious, it was an intervention that was both necessary and expected. She said the changes to the bright-line test and the additional $2b to allow Kāinga Ora to open up more land for affordable housing were the most promising of today’s announcements.

Meanwhile, property investors have decried the plan to eliminate interest rate tax deductions, with Andrew King from the NZ Property Investors Federation calling the changes “bizarre” and “crazy”.

“What, so every other business in New Zealand can still claim tax deductions, but not landlords?… You’re joking! This is just bizarre, it’s crazy,” he told the NZ Herald.

Wendy Alexander, acting chief executive of Real Estate Institute of New Zealand (REINZ), said while she understood the government’s intentions, the extension to the bright-line test would not increase the supply of houses.

“In actual fact, what it’s likely to lead to is residential property investors holding on to their properties for even longer in order to avoid paying tax, thereby further reducing the total pool of properties available in the market,” she said.

“However, the fact that new builds are to be exempt from the bright-line test is welcome news and could go some way to helping to boost the overall supply of housing.”

Passengers from New Zealand arriving at Sydney’s Kingsford Smith Airport on October 16, 2020 (Photo: James D. Morgan/Getty Images)
Passengers from New Zealand arriving at Sydney’s Kingsford Smith Airport on October 16, 2020 (Photo: James D. Morgan/Getty Images)

OPINIONBusinessMarch 22, 2021

The first glimpses of life after Covid-19 are appearing. Now what?

Passengers from New Zealand arriving at Sydney’s Kingsford Smith Airport on October 16, 2020 (Photo: James D. Morgan/Getty Images)
Passengers from New Zealand arriving at Sydney’s Kingsford Smith Airport on October 16, 2020 (Photo: James D. Morgan/Getty Images)

With the pandemic poised to start winding down, the government still needs to grapple with some significant obstacles, writes Pattrick Smellie for BusinessDesk.

In the last fortnight, life after Covid-19 has started to become visible. With the notable exception of Europe, where a third wave of infection appears to taking hold while governments dither over the safety of the AstraZeneca vaccine, inoculations are starting to roll out at pace.

For the Ardern government, this has created some serious challenges. A vaccinated world is one where New Zealand’s Covid-19 elimination strategy is no longer a source of national strength or economic advantage. It should, in fact, become irrelevant beyond branding messages relating to safety and competence.

However, a large part of the strategy’s success has been its monolithic nature. Elimination has been an all-or-nothing approach that has worked while the virus was winning. The challenge now is to start adjusting to a more nuanced response in which other countries start to reopen by virtue of vaccines rather than elimination.

For monolithic government agencies, particularly traditional foot-draggers like the Ministry of Health and Immigration New Zealand, the switch to a less clear-cut approach is a challenge. For the government, which relies on those agencies for advice and execution, the line between the high level of public acceptance for elimination and the growing sense that its time is passing will be complex to navigate.

It may be particularly difficult for ministers for whom the endless bleats from one business group to “open up now” have become like the sound of the sea over the year since border closures were imposed. It took political courage to stare down those calls. It takes political wisdom to hear and respond appropriately to them now.

Bubble politics

This dynamic is most clearly playing out over the trans-Tasman travel bubble. Just the week before last, the government was still engaging in tit-for-tat exchanges with Canberra about whose fault it really was that the bubble had proven impossible to negotiate. Even as recently as last Monday’s post-cabinet press conference, Jacinda Ardern was still caught in a jumble of waffle about where things stood on the long, slow dance to allow quarantine-free travel to Australia.

But things were suddenly moving. By Tuesday evening, rumours of a trans-Tasman bubble as early as April 15 were sweeping the Beehive. By week’s end, while Ardern remained most cautious on the topic, her Covid-19 response minister Chris Hipkins was clearly itching to let the cat out of the bag.

The government would have “a lot more to say” about the bubble this week. Airports and airlines reported a sudden burst of activity from the range of government agencies that have to coordinate any such opening. By last Thursday evening in Auckland, Ardern was urging senior executives at a BusinessNZ dinner to become vaccination centres and to “pick up the phone” to ministers.

This may have stuck in a few executive craws. Anecdotal tales of futile attempts to engage with senior ministers over recent months are legion. This is not just the usual grizzlers, but many of the same business leaders the government willingly turned to in the early days of the pandemic, when the “team of five million” was born. There had been growing reluctance to confront the government. Auckland International Airport chair Patrick Strange’s recent effort to wrangle a handful of other major company chairs to support a call for a more transparent path out of the pandemic is a case in point.

Don’t rock the boat

Far more than the six who signed the statement were approached, but most company boards were concerned not to infuriate a cabinet that seemed to be in thrall to its own advisers, unwilling to hear external voices, and increasingly intolerant of criticism.

Yet behind the scenes, Ardern was thumping the table at the health ministry asking to know why government agencies couldn’t get Covid-19 saliva testing under way when private sector startups could, and appointing a new Brian Roche-led committee to run the rule over the bureaucracy’s Covid efforts.

The late February Auckland lockdown was also a wake-up call, its impact shown by the slump in support for Ardern in the first OneNews Colmar Brunton poll of the year. Her popularity remains high – at levels polled just before the country closed its borders, a year and two days ago. But at that level of support, she also faced a National Party that could have won the 2020 election.

Jacinda Ardern and Ashley Bloomfield (Photo: Hagen Hopkins/Getty Images)

The government appears to have sensed the swiftly shifting public sentiment and is now responding. For that reason, it is almost certain today will see the announcement in principle of a travel bubble with not only Australia, but also potentially the Pacific Islands. Exact dates may not emerge immediately, but Air NZ is starting to advertise new flights to main Australian cities from mid-April, last Friday unveiled a new Auckland-Hobart service underwritten by the Tasmanian government, and is ramping up its calls to furloughed crew who may soon be returning to work.

Nine months to go?

There is still a long few months to go before it will be safe to be confident the pandemic is truly receding. However, businesses seeking a solid timetable from the government might consider using their own commonsense. If New Zealand should be adequately vaccinated by the end of this year and is moving more slowly than some other major trading partners, then we are looking at another nine months to the end of this viral marathon.

The relaunch in Auckland last week of New Zealand’s pavilion at the international expo in Dubai was one such harbinger. Postponed from last year, the expo is scheduled to open in October and run until March 2022.

This will be a major marker in both New Zealand’s and the world’s move into a post-Covid environment.

How to be helpful

Between then and now, the government needs one thing more than anything from every available source of trusted authority: support for vaccination. While 70% of New Zealanders are said to be willing to be vaccinated, perhaps half of that group are hesitant, and susceptible to misinformation and fear. Unlike the rest of the world, New Zealand has not seen its hospitals and cemeteries overwhelmed by Covid-19, so the catastrophic consequences of the virus are more easily discounted against the tiny potential for harm from a vaccine.

Ardern on Friday asked businesses to be willing to make themselves into vaccination centres. They could go a step further, offering to vaccinate the extended family of their employees to accelerate the roll-out. This is perhaps the most practical single thing business owners can do to secure their own return to normality as quickly as possible.

Key to that, also, is the research that says vaccination should not be sold as self-protection, but as protecting one another. The “team of five million” needs to ride again, in what will hopefully be a final push into a Covid-free 2022. At that point, even greater challenges will loom for Ardern. The consummate crisis manager will be back to business as usual – not necessarily her strongest suit.

This article originally appeared on BusinessDesk. Their team publishes quality independent news, analysis and commentary on business, the economy and politics every day. Find out more.