Q + A

PANEL DISCUSSION 1

Hosted by SUSAN WOOD

In response to LOAN RESTRICTIONS

SUSAN Welcome to the panel this morning. Dr Jennifer Curtin, nice to have you on again. Wyatt Creech, former National MP, I don’t think we’ve had you on this year at all, actually. Nice to see you. And Josie Pagani, of course, former Labour candidate, who has been on the programme this year. Josie, very interesting – Kirk Hope from the Bankers’ Association. Canada, Sweden – they had those sort of— they restricted the low-deposit lines, and these saw a lot of people going off to the unsecured lenders – the expensive loans. That’s a worry for New Zealand.

JOSIE PAGANI – Former Labour Party Candidate
I think it’s inevitable. I mean, when the average family can’t afford the average house, you have got a problem, and they’re going to go somewhere. And if they can’t get a loan from a bank and they haven’t got Mum and Dad to back them up, they’re going to go to loan sharks. But, yeah, I think the fundamental issue here is that the housing boom that we’ve got is not caused by first home buyers. We haven’t got too many first home buyers or low-income buyers buying too many houses. What we’ve got is, you know, investors overcapitalising on their existing properties, borrowing, you know, 100% mortgages or more, and they’re able to do that because we can borrow money overseas, so foreign debt increases. They’re banking— They’ve got their long view on that tax-free capital gain they can get in the future, so they’re prepared to pay whatever it takes and bid the price up. Now, your poor old first home buyer or your low-income earner who’s trying to get a mortgage on taxable income cannot compete with that. So the problem that we’ve got is that something like the loans value ratio, where you’re basically rationing who can get a mortgage, isn’t going to solve that structural problem that the incentive is to bid up the price—

SUSAN You’re talking capital gains tax.

JOSIE …and sit on the capital gain. Yeah. You know, we just saw from Nick Smith there. He talked about the need to do something about the land banking and change the incentives. Well, you know, you’re not going to stop that until it doesn’t actually make commercial sense to just buy a property and sit on it and get the tax-free capital gain.

SUSAN Wyatt, does Josie have a point on capital gains tax? Not on your primary home, I assume, you were talking?
JOSIE No. No, that’s right.

WYATT CREECH – Former National MP
Capital gains taxes will have some effect, but, you know, Australia and the United States and countries like that have a capital gains tax, and they have property booms. It won’t eliminate it. Neither will the Reserve Bank’s loan-to-value ratio eliminate it. People will just find other ways of borrowing the money. I think what we’ve got, and this is, sort of, widely acknowledged as a supply problem – you’ve got to increase the number of houses that there are there. The only thing I’m nervous about is I listen to both the major parties, and when they talk about housing, it looks as though we’re just going to have more sprawling suburbs. I’d like to see what the Auckland Council’s talking about – this more intense, densely housed city, and if they can do that, that’s more the way I think Auckland should be going in the future.

JOSIE The problem I’ve got about— I think it is the supply issue as well. It’s also a demand issue.

SUSAN In Auckland, and Auckland is its own unique case, actually.

JOSIE Yes. Yes, that’s right. But the problem with just focusing on supply is that if you’re going to free up land, whether it’s going up or out, where’s the guarantee that it’s affordable? And who are all these property developers who are going to build it in the first place, and then everybody’s going to come along and buy it. You’re not actually doing anything necessarily about the price.

WYATT Where the answer is to that, of course, is an economics one. If you increase the supply of a product, the price becomes more— the equivalent price drops. So as long as there’s a shortage, and we haven’t been building nearly enough houses in Auckland for years, which is coming back to bite.

SUSAN The politics of this, Jennifer, first homeownership – homeownership’s a birthright in this country. It’s sort of like health and education, isn’t it? The politics of this is it’s a really hot one for the Government, and they’re doing a lot, it seems, to try to address it.

DR JENNIFER CURTIN – Political Scientist
Yes, and they should be concerned about it because— and Labour’s in a good position here if they decide to use their platform better in the sense that they support a capital gains tax and they’re a party that can support that. They also support, you know, increasing the supply of houses in Auckland and using the state to do it. Whereas National – it’s much more difficult for them to find these kind of incentive mechanisms without looking like they’re intervening too much. But National does have a worry because there are a lot of marginal seats in Auckland, and they want to be able to keep them next year. And, yeah, so I think, really, it’s probably more of an issue for National than it would be for Labour.

JOSIE I think it’s a real problem too that we’re going into an election year next year – you do not want to be making life difficult for young families in election year. And I think probably John Key— they’ve signed a memorandum of understanding with the Reserve Bank to do something about the housing boom without lowering interest rates, necessarily. Sorry, without increasing interest rates. So now they’re hoisted by their own petard, really.

SUSAN Wyatt, we did hear, though— we did hear Nick Smith hinting, pretty much – KiwiSaver – they’re going to looking at getting people in. So there are going to be mechanisms this government’s going to be looking at using to help first home buyers.

WYATT Yeah, in a way. I mean, you know, I still think that the fundamental thing is that you’ve got to get more housing available in Auckland. And I don’t think you should subsidise it, because the moment you subsidise it, you make it artificially cheaper to live in Auckland than you do in other parts of New Zealand, and you’ll make the problem worse. But the problem with using KiwiSaver – if people use their money for a deposit, then it’s not available for their retirement, and it was a retirement income scheme, fundamentally. So—

JOSIE I still think you’ve got a problem about whether increasing supply will increase affordability. Because I think in the ‘80s, 30% of houses were— expensive houses were built— 30% of all the houses built were cheap. Well, now it’s about 60% of all the houses built are at the expensive end and nearly zero on the cheap end, so how do you—?

WYATT Oh, I think the Government are conscious of that, though.

JOSIE You increase the supply, but how do you guarantee you’re not just increasing the supply of expensive housing?

SUSAN Well, I mean, look at Hobsonville. You know, your housing there is 400, 500, 600,000. That’s not cheap housing.

WYATT Not cheap housing, but I don’t think the argument of the supply problem is defeated by that argument. I mean, if you increase the supply of houses, the market price of houses, relatively speaking, will fall. And I go back to say that in Auckland, they haven’t been building enough houses for a number of years, and this is building up as a problem. It won’t go until the number of houses that is available is equal to the demand.

JENNIFER In Australia some of the states have put in place the first homeowner grants apply solely to new homes, so you have to go and build a new home rather than buying existing homes, which stops the inflation around existing homes to the same extent.

SUSAN So it’s addressing your supply issue there. What about smaller parts of New Zealand, other parts of New Zealand? We’ve talked exclusively about Auckland. You know, if this lower— higher deposit comes in, what’s the impact going to be there?

JOSIE Well, that’s interesting, isn’t it, because another way of talking about housing affordability is talking about incomes. And clearly, incomes aren’t high enough to afford houses in places like Auckland, so, you know, it would be great if there was a regional development plan right across New Zealand, where you’ve got to have the jobs, for a start, so people aren’t going to want to go and live out in the regions if there aren’t the jobs. So it’s got to be a policy where you’re looking at creating a life in the regions for people, and then that’d be great.

WYATT I’d be quite happy if the policy caused the people to say, ‘Houses are too expensive in Auckland. Let’s shift to somewhere else.’ I doubt that’s going to happen. It seems to be people want to live in Auckland, so that’s where the focus is.

JOSIE Well, that employment’s so high—

WYATT I don’t think that you can say that the rest of the country has got the same problem, because the boom that the Reserve Bank is trying to deal with is solely Auckland.

SUSAN Solely Auckland, so it’s interesting you’re bringing out a policy that affects the whole of New Zealand, isn’t it?

JOSIE Well, it is— Prices in Wellington are high; prices in Christchurch are going up.

SUSAN A lot lower than Auckland.

WYATT A lot lower.

SUSAN Christchurch, again, its own unique scenario. Very good.

JOSIE I mean, a regional development plan would be great.

SUSAN Thank you, panel.

ENDS

© Scoop Media