Today brings confirmation about the depth of the crisis in a global context. We need bold action, not tinkering at the edges. And overhauling the tax system has to be part of the change, write Geoff Simmons
The Demographia Housing Affordability Report released today shows our country is losing at housing. We are the worst in the developed world when it comes to housing affordability. All of our housing markets were deemed “severely unaffordable”, with the median house costing more than six times the median household income. We managed to snatch the wooden spoon from Australia and the United Kingdom, both of which incidentally have a Capital Gains Tax (excluding the family home).
Imagine if we got a similar result in the Rugby World Cup later this year? There would be outrage, and calls for a massive overhaul of the way we structure rugby in this country. Instead when it comes to housing we are fiddling at the edges and pinching ideas from the countries that are marginally better than us. It would be a bit like crashing out of the Rugby World Cup and then hiring the Portuguese coach to take over the All Blacks.
Unlike rugby, there should be no surprise at this housing result. As a country we have been training for this for many years. Since the late 1980s our tax system has favoured housing more than any other developed country in the world. Kiwis have responded with gusto, putting more of our money into housing than any other country in the world. Sadly most of this money hasn’t been to improve the quality of our housing, a large proportion of it is still cold and damp. Instead the money has gone into bidding up the price of land.
Commentators and politicians continue to point to the the “supply side” – the roadblocks with building more houses. Council processes, the Resource Management Act, infrastructure are certainly all issues that need to be tackled. But the major cost of any new building is by far the cost of the land beneath it. Nothing proposed by the current crop of career politicians will change that. The focus on the supply side alone is like analysing the All Blacks performance by only looking at the backline.
The demand side is at least half the problem, and in the long term it could be much more than that. Economist Ann Pettifor (who predicted the Global Financial Crisis) has pointed out that building more houses will not solve the problem because in the long term speculation is the key driver. And this speculation holds up supply because landowners are quite happy to sit on their land undeveloped and watch the price go up.
So what is the Labour-led government proposing to do on the demand side? The best we can hope for on the back of the Tax Working Group seems to be a Capital Gains Tax excluding the family home. As noted above this policy is already in place in the two countries that are slightly ahead of us in the housing affordability stakes, Australia and the United Kingdom. It clearly isn’t doing the job of improving housing affordability there, why do we think it will do the job here?
We can have affordable housing, but we have to demand more from our current crop of career politicians. Their ambition for our housing market is to be slightly less crap than we are now. The All Blacks don’t go into games with that sort of attitude, and neither should we when it comes to having a warm, dry, safe place to live.
Our housing market is a social and economic disaster. Ordinary people can’t afford to live where near where they work. Some can’t afford to live anywhere. Businesses are starved of money because it all goes into housing speculation. And as noted by the latest Oxfam report, inequality is growing as a result – the rich are getting richer, the poor are getting poorer and housing is largely to blame for both.
You can be sure that if we were losing at rugby, the whole country would put our effort into figuring out what went wrong and what we could do better. Just as we did in the early 2000s, when we learned from England that having a decent forward pack is still important. We wouldn’t be afraid to pinch ideas from the best and if necessary, take radical action.
Fixing the housing crisis is no different. It will require bold action, not tinkering at the edges. And if we are looking at the best countries in the world, overhauling the tax system has to be part of the change. We have to remove the incentive to speculate on housing and land and encourage people to put money into productive businesses that create jobs and exports. We have to give land bankers an incentive to get on and develop their land. And ultimately over time we have to bring land prices down.
Geoff Simmons is the leader of the Opportunities Party.
The Spinoff Weekly compiles the best stories of the week – an essential guide to modern life in New Zealand, emailed out on Monday evenings.