Taking the Long View: Housing a social justice issue

Sustainability. I rattle on about it here, with environmental issues the focus of my attention. But there is more to it than this.

Often likened to the legs of a stool, there are four ‘pillars’ of sustainability: social, economic, cultural and environmental. All are important and all must come into play if a balance and stability are to be achieved.

But what exactly do we need for true sustainability? Margo Flood captured it nicely in an essay on sustainability leadership. She called for social justice, economic resilience, cross-cultural understanding, and environmental responsibility.

Take social justice, for example. It’s not on when there is increasing inequality such as we now face in New Zealand. It’s missing when we have such shameful levels of child poverty (surely a disgrace for a developed country like ours). And it’s certainly not happening when young, hard-working Kiwis are shut out of home ownership and the less fortunate resort to living in their cars.

Housing is a lightning rod for heated discussion and dissent these days and with good reason. Seventy-six percent of Kiwis in a recent poll said we have a housing crisis. Sixty-one percent of National voters say we have one.

The Government, for its part, says there is no housing crisis. Emergency funds are being released and desperate, stop-gap measures taken to house people and encourage them to move on, but there is no crisis.

Yes, there is a “shortage of housing” in Auckland (the Government’s mantra) – affordable and otherwise – and various supply-side measures are being put in place to address it.

The demand side is a sticky issue and where talk of domestic and foreign investors, and a capital gains tax, comes in. It’s about who owns houses and how they are used. It’s a discussion the Government would gladly sweep under the carpet.

When I shifted here from Canada 14 years ago, I was mystified by the number of people I met who owned residential property as an investment (for some their only investment). In Canada I knew only one person who did. In Canada there are no particular advantages over other types of investment; here, owning property remains the best deal in town.

I cannot recall reading one report or hearing one knowledgeable economist or business commentator say that the current tax structure favouring residential real estate is good for the country. The message is quite the opposite, in fact: bricks and mortar investment is a dead weight on the economy.

Yet the system remains staunchly in place. No surprises there, perhaps, given reports on the property investments of politicians – National MPs in particular. It’s not only the cynics who would say they’re just looking after themselves and their mates.

National’s recently announced capital gains tax on housing, giving investors some time to react and only applying to property held for less than two years, will have little effect.

It’s time we had a capital gains tax that can actually make a difference. Both the OECD and IMF have been calling for New Zealand to implement such a tax and thus emulate the efficient and equitable schemes operating in the likes of Australia, Norway, Sweden, the UK … and Canada.

Let’s implement it on housing only (with primary residence excluded) as a disincentive for this form of investment. Set the tax rate high enough to have an impact. Make it effective immediately on all new purchases (when sold). Implement it for currently-owned properties in a way that allows an orderly sell down.

We might then move to a broad capital gains tax when a just equilibrium of housing ownership between occupiers and investors is reached.

As a further step, non-residents should have no place in the housing market as owners. If I still lived in Canada there’s no way I’d think I had the right to own property here just because I felt like it. Young Kiwis desiring the privilege and stability of home ownership for their families deserve better!

In time, a preferential capital gains tax on residential investments (and ownership restricted to citizens and permanent residents) would help strengthen the economy, lead to reduced inequality, lower foreign borrowing, contribute to a stronger stock market, mean Kiwi entrepreneurs would not have to look overseas so often for investment funds, and provide more opportunities for young Kiwis to have their own home and simply get ahead in life.

Not a bad return on one tax policy change.

Gord Stewart is an environmental sustainability consultant. He does project work for government, industry, and non-profit organisations.

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