Property Institute proposes bold new housing solutions

Property Institute proposes bold new housing solutions

Property Institute of New Zealand Chief Executive, Ashley Church, is calling for Government, Local Government and the Reserve Bank to work together to introduce a range of new measures to address the Auckland housing crisis.

"There have been some significant steps toward solving the issues facing the Auckland market but they still lack a coordinated approach that ties together the good work of the past couple of years. What we need, now, is a considered package that focuses on buyer behavior".

Mr Church says that a lack of coordination has led to a variety of different approaches and disagreement about the nature of the problem actually facing the market.

"While some commentators are focused on a view that the market is about to crash - others are convinced that house prices will continue to rise indefinitely and are looking for ways to address affordability. Both views can't be right".

Mr Church says that, while he understands the fear of a crash, the evidence suggests that house price inflation will be with us for a while yet. He believes that:

* House prices, in Auckland, will keep going up until there is a significant increase in supply - after which house prices will taper off with only a small fall, if any.

* The perception that Government can fix the supply issue is dangerously wrong. The key to addressing supply is a dramatic lift in the extent to which kiwis are prepared to build or buy new dwellings in preference to existing dwellings. To date, the mix has been all in the wrong direction.

* Property Investment is a good thing - but it is going into the wrong places.

* Meanwhile, it could be years before house prices taper off - and first home buyers shouldn't have to wait.

Mr Church is proposing a series of solutions.

1. Remove Loan to Value Ratio restrictions (LVRs) on first home buyers. Let these people buy any property they choose provided the Banks are satisfied that they have the capacity to meet their mortgage repayments.

"The problem isn't really one of affordability; it's about access to loans. Mortgage rates are at record lows - but most young couples struggle to put together a 20% deposit in a market where the average price is approaching $1 million. As recently as 3 years ago Banks could lend as much as they felt a borrower could comfortably afford and the sky didn't fall in. We need to bring back that policy for first home buyers. The Banks, and not the Reserve Bank, should be deciding how much the deposit should be".

2. Remove LVRs on anyone (including property investors) buying or building a NEW dwelling (this has subsequently happened).

"Property Investment is a positive thing - but it's going to the wrong places. Currently, 42% of properties in Auckland are being sold to Investors who are simply selling existing homes to each other and inflating the value along the way. Redirecting that money into the construction of new dwellings is a much more positive use of capital and will fast track the speed at which new dwellings are built".

3. Increase LVRs for property investors buying an existing dwelling

"Removing LVRs on Investors who purchase or build new dwellings will provide a strong stimulus to the construction of new homes - but that policy needs to be 'book-ended' with measures designed to make it very difficult for investors to continue buying existing dwellings. Increasing the LVRs to 60 or even 70% will send a very powerful message to the market and will ensure that many more homes are built".

4. Discourage land banking by significantly increasing rates on vacant subdivided/separately titled sections.

"Given steps 2 and 3, the appetite for land throughout the city will be at a premium - so this last step is designed to discourage the holding of bare land that could otherwise be used for new dwellings. To do this, land owners would be given 12 months to commence development of the land - after which the Council rates payable on the site would be dramatically increased. This would apply to large scale developers, small scale developers and mums and dads sitting on titled sites - and would be a very clear message to get busy, rather than sitting on land which could otherwise be used for homes".

Mr Church believes that, taken together, the measures he has outlined could be a game changer.

"These measures have the potential to significantly change the behaviour of the market. There would be a clear signal to investors that they need to focus on building new homes, while offering first home buyers a break from the restrictions that are locking them out of the market".

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