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real estate auction
People gather outside a real estate agency’s auction rooms in Auckland CBD in October, 2020 (Photo: Getty Images)

SocietyNovember 30, 2020

One simple idea to fix New Zealand’s dysfunctional housing market

real estate auction
People gather outside a real estate agency’s auction rooms in Auckland CBD in October, 2020 (Photo: Getty Images)

Currently, investors are essentially subsidised to outbid homebuyers. Instead, why not give homebuyers a tax cut and make the speculators pay?

Have you ever wanted to throw a party but worried no one would come? My wife and I thought of having a party this year to celebrate paying off our mortgage but quickly realised it wouldn’t be fun for our friends – most of whom have mortgages well north of $500,000, or haven’t made it on to the property ladder at all.

It made me reflect on how it now takes privilege and, in our case, loss to experience what was, until recently, a typical Kiwi home-owning story. It was the privilege of education and opportunity, and being able to live rent-free with family, that allowed us to buy relatively young, before house prices exploded. It was deaths of affluent family members that led to inheritances that allowed us to pay off the mortgage early.

Luck is no basis for a just and equitable system. Yet the luck to have been born into a family that will give you opportunities and financial help has become a prerequisite to own your own home in New Zealand. And with house prices exploding due to record low interest rates and loose lending, that is only becoming more true.

I’ve got an idea for how to fix it.

Grant Robertson has said the government will look at new measures it could take on the demand side – ie discouraging investors and speculators – while not going back on the election commitments Labour made ruling out things like capital gains tax, wealth tax and a land tax.

Extending the bright line test further is no good. It runs into diminishing returns and the justification that it’s to stop people flipping homes gets more and more tenuous the longer you extend it.

Broadening the first home grant won’t help. It costs quite a lot of money per family it’s helping, and it’s ultimately adding net demand to the market, pouring more petrol on the fire, which will increase prices.

property investment concept
Photo: Getty Images

OK, so what options does that leave? More than you might think.

First, the Reserve Bank must reinstate the LVRs on investors. Now, not in March. It’s a no-brainer. The rules shouldn’t have been relaxed in the first place.

On the supply side, what if we target the landbankers and ghost landlords? For starters, change the Local Government Act so councils can only rate on the land value of a property, not the value of buildings and other improvements. That would make holding empty or under-developed land much more expensive and remove the tax penalty for developers. Less landbanked means lower land prices.

Residential plots and houses that sit empty for a year (determined by power/water/data use and inspection) could be made subject to penalty rates unless the owner has an excuse, like redevelopment. That would push landlords to rent out their properties and landbankers to build.

What about a non-monetary measure? Requiring landlords – the people who own the property, not just the property managers – to be licensed. To get the licence, they would have to pass a test showing they understand the rules and rights of tenants. The licence could be revoked if they break the rules, giving an effective sanction on bad landlords.

Ultimately, professionalise being a landlord and get the “hobby” landlords out of the market, which would, in turn, reduce their demand for houses. Treat rentals like any other business where the customer comes first, rather than a capital return-making scheme with annoying tenants to deal with.

OK, but what if we really want to get serious: what if we wanted to break the business model of large-scale speculators altogether while not hurting the politically important “mum and dad” investors too much, and actually helping homebuyers.

Turns out we can, and it needn’t cost the government a cent.

Currently, an investor can claim all the interest they pay on a rental’s mortgage as a tax deduction. Those deductions cost the government around a billion dollars a year at current interest rates and it essentially subsidises investors to outbid homebuyers.

A homebuyer can’t deduct their mortgage interest. So, while a homebuyer might have a mortgage interest rate of 3%, after the deduction, it’s only 2% for the investor. This means an investor can afford to pay more for a given house because their net mortgage payments are lower.

So, what if we take that billion dollars and spread it evenly among everyone with a mortgage? Every household with a mortgage could claim up to $3,000 in mortgage interest as a tax deduction. In other words, they get $1,000 back from the government. 

For first homebuyers, it’s a nice little leg up – $20 a week off your mortgage. For mum and dad investors, it’s a thousand or two less than they currently deduct – not the end of the world. For large-scale speculators – it’s the end of their business model.

The idea for this came to me when I was reading about a speculator with 50 houses and tens of millions in mortgages. I estimated he was getting something like half a million dollars a year in subsidy from the government to fund this speculative empire, while hoovering up homes that first homebuyers would love to buy and making them his tenants instead. Large-scale speculators like this guy make up less than 1% of the population but own one in six houses. I would dearly love to see him and his ilk stopped – and losing that half a million a year in subsidy would do the trick.

Now, some will point out that any business can deduct its interest costs, but buying a house is not just any other business. It is directly competing with homebuyers for a limited pool – outbidding them and forcing them to remain renters.

This homebuyers’ tax cut would help homebuyers directly but, more importantly, force large-scale speculators out of the market, easing the upward pressure on prices. And it doesn’t cost a cent to the taxpayer or pour more money into the housing market – it’s just taking from that small number of large speculators and spreading the cash around homebuyers instead.

You would have to have exemptions for large-scale public housing suppliers and you would want to let build-to-rent developers, who are increasing supply, keep the full deduction for, say 10 years, but the key thing is, it has broken the large-scale speculation model.

We can make homeownership a normal reality for families again. We can stop it becoming the reserve of those who are fortunate enough to be able to inherit money and opportunity from their families. To do that, we need to stop subsidising large-scale speculators.

Clint Smith is a former ministerial adviser to the minister of housing and urban development and former adviser to the Labour and Green parties. He now runs Victor Strategy and Communications.

Keep going!
eden park
Photo: Getty Images

OPINIONSocietyNovember 30, 2020

The ban on concerts at Eden Park is the ultimate triumph of the New Zealand nimby

eden park
Photo: Getty Images

A tiny minority of local residents – led by a former PM – are holding back the joy of hundreds of thousands, and millions in economic benefits. 

On Friday night Eden Park hosted a thrilling seesaw of a T20 between New Zealand and the West Indies. On Saturday the Tasman Mako secured back-to-back Mitre 10 Cup titles with a one-point victory over Auckland. The stadium is in action again on December 18, when the Black Caps take on Pakistan. Then, for almost three months, there’s nothing. Until March 5, when the same team faces Australia, there are no major events scheduled for New Zealand’s largest stadium.

This is only in part due to our closed borders and the associated scrambling of schedules. It’s also because summer is largely outdoor concert season, and that remains something which Eden Park is essentially unable to host. This is not because it would not like to host them – the park’s board is in the middle of a battle to find an economically viable way to get resource consent to host the six concerts it’s annually allowed under the Unitary Plan. It’s not because of a lack of demand – just this week Six60, the biggest band in New Zealand by several miles, began outwardly lobbying for the opportunity.

In fact, it’s because a tiny group of local residents, all of whom very deliberately moved into the streets surrounding New Zealand’s biggest and best stadium, remain steadfastly opposed. As a result, one of this country’s most valuable pieces of infrastructure, which has had hundreds of millions spent on it by central and local government, is operating at half speed. Eden Park is stuck in limbo by the ultimate nimbys, and is thus a microcosm of the dilemma facing New Zealand: the entrenched power of a tiny but well-positioned minority to prevent change that benefits the huge majority.

Auckland sing the national anthem with the crowd during the Mitre 10 Cup Final between Auckland
Saturday night’s Mitre 10 Cup final at Eden Park (Photo: Fiona Goodall/Getty Images)

What’s the point of living in the inner suburbs?

This issue is one that vexes me in part because I’ve lived in the streets surrounding Eden Park for more than 20 years. The Spinoff’s offices are a few hundred metres away from the south stand. I know very well the disruption live events cause – the parking issues, the traffic backed up, the bottles which appear at street corners, the crowds that roar at tries and sixes then flood Kingsland, sometimes not in great shape, before and after matches. 

While I occasionally attend, much more frequently I’m at home on a couch. It seems counterintuitive to argue that it should be used more – to ask for more noise and friction to come to the neighbourhood. Yet I would love it if it were host to huge stadium shows a few times a year, as would the vast majority of the neighbourhood: there were almost 3,000 submissions in favour of allowing a limited number of concerts, and less than 200 against.

That’s because when you move to the inner suburbs of a city, that energy is part of what you’re seeking. The summer nights when speedway buzzes across the valley, or shows at Western Springs are almost loud enough to be enjoyed from the back porch – that’s part of the point of cramming in here together like this. 

Those who see the stadium as only a burden on the local neighbourhood can’t see beyond their own nose. Each time Eden Park hosts a major event, thousands of people go for drinks and dinner before and after the match, putting thousands of dollars into local bars and restaurants. The Eden Park economy is part of the reason the Kingsland and Mt Eden hospo scene is so vibrant and part of the reason they’re such great places to live. And after the year hospitality has had, it’s never been more important.   

Yet Eden Park continues to be hamstrung in its ability to be all it can be. Essentially it’s caught in the middle of a battle between what the country has been and what it seeks to become. 

Would this really be so bad?

What do we want New Zealand to be?

The same fundamental argument is playing out in Wellington and Christchurch, where residents cite heritage issues or excessive density as reasons to block development of desperately needed homes. New Zealand has in recent years become committed to prioritising the desires of those who already have means over the needs of those who do not. 

This is largely because the former are already in a location and often have significant amounts of time and economic power to pay for lawyers to act on their behalf. The thousands impacted by a lack of housing are mostly invisible and voiceless – the thing they seek is prevented from existing, which tends to reduce someone’s propensity to fight for it.

While preventing certain uses of infrastructure is clearly not as fundamental a right as that which exists to affordable housing, the collective sense of loss every year is not small. Each stadium-scale concert has an immense economic impact on New Zealand, and a cultural impact that is hard to measure. But it stands to reason that if tens of thousands witness a show, some percentage will have their lives improved, even altered, in ways small and sometimes large. 

There’s a brutal irony that the chief antagonist of Eden Park’s ability to host concerts is Helen Clark, former PM – and a former minister for arts, culture and heritage. She remains a formidable campaigner – when RNZ Concert was briefly threatened earlier this year, it took a matter of days before the decision was reversed, in part due to the strength of her opposition to the move.

Yet the desire of a stadium, a community and a city to host cultural events near her home is curtailed, in no small part due to the immense power she still possesses. Although she is entitled to a view, it is worth underlining that while she has lived near Eden Park for 40 years, the stadium has lived here for over a century. 

In those 40 years the country has changed markedly, at many points because of transformative governments of which Helen Clark was a part. Everything from homosexual law reform and the decriminalisation of prostitution to the creation of the Supreme Court happened in part because of the strength of her convictions. 

Yet the country remains in motion. Friday night’s game’s primary broadcaster was Spark Sport, delivering the game over UFB. Both sides took the knee before the match, to show solidarity with the Black Lives Matter movement. The crowd on screens was far more diverse than that which would have attended Eden Park in the 70s, and the game itself was played over a few short hours, mortifying traditionalists.

Around the world sports fans see Eden Park as an iconic venue. Outside of New Zealand it has a reputation similar to the MCG or Wembley Stadium as the fortress of the All Blacks. But at home Eden Park has never been given the opportunity it deserves to grow into a city asset the equal of those stadia. Now is the time to change that. 

Eden Park must be considered the primary venue for world-class events – both sporting and cultural – in the city’s future. Forget a waterfront stadium, it always had an unjustifiable price tag. Mt Smart is old, inaccessible and isolated and has none of the vibrance of Eden Park’s surrounds. Albany stadium is in Albany.

Auckland Council must invest in Eden Park’s success and potential. Make it the home of the Warriors, and mens’ and womens’ New Zealand Big Bash T20 teams. Use it for food festivals and night markets. And it must be allowed to host concerts and allow Auckland to attract that rare school of artist that requires a modern stadium venue. 

New Zealand has to remain in motion. Its population has expanded far faster than demographers thought possible, and a 70s-style burst of home and infrastructure building (created to accommodate the baby boomers) is needed to meet the needs of that expanded population. 

As our cities evolve, so should the way we use them. It’s no longer acceptable that a tiny minority of residents – no matter how well-connected – should be able to block a more efficient and modern use of such an important piece of city infrastructure. For Auckland to become the kind of city it always says it is, the functional ban on concerts has to end. 

Correction: an earlier version of this story incorrectly attributed the rollout of Ultra Fast Broadband to Helen Clark’s Labour government. It was in fact a National government initiative.