15 September 2008
Housing policy treats symptoms not cause
National has released their housing policy, which tinkers around the edges of housing availability, but does not address
the reasons for our inflated house prices. The New Zealand Manufacturers and Exporters Association (NZMEA) say that the
record breaking housing bubble in New Zealand is due to a mix of investment biases and easy credit flooding into New
Zealand as a result of our single minded approach to monetary policy. The reaction to this combination of forces could
see house prices slump by over 25%.
The policy focuses on the availability of land and state assistance for first homebuyers to try to increase housing
affordability. While these initiatives will help, they do not address all the reasons for our housing boom. Property
investors can simply claim a capital transaction to avoid being taxed, fuelling the housing bubble.
NZMEA Chief Executive John Walley says, “First home buyers have effectively been priced out of the market by property
investors. Increased prices support inefficiencies and higher margins in the supply chain, and higher costs get locked
in. House prices in New Zealand have risen by 70% relative to household income since 1999, which is the largest
increase in the developed world.[1] We need to see more balance in our tax system to remove housing incentives.
Investment in housing does little for the real economy as productive investment is starved and generally productivity
falls.”
As Alan Bollard has mentioned, demand for housing has dipped away substantially. He expects house prices to dip about
15% during this housing slump, however, the outlook could be much worse. Consumer spending is likely to dip further as
people prefer to save or reduce debt.
“These conditions leave the conclusion that demand will fall. Graham Beale, Chief Executive of the Nationwide Building
Society in Britain, has predicted a 25% dip in UK house prices, and their bubble was smaller than the one in New
Zealand, so we might expect a larger drop here,” says Mr. Walley.
“We need to see policy changes that provide balance and encourage investment in productive activity to create real and
permanent benefits to our economy.”
ends