The Government’s long-awaited response to dampen house prices has been released, with carrots for first home buyers but a stick or two for property investors and speculators
The Government has unveiled its response to the country’s housing crisis, with a $3.8 billion fund to provide infrastructure and more land for development among the initiatives to take the sting out of the market.
The bright line test for taxing residential property gains has also been doubled in length – from five years to 10 – while a tax ‘loophole’ for property investors will be removed, and income criteria for first home grants loosened.
Prime Minister Jacinda Ardern and a trio of senior ministers unveiled her administration’s hotly-anticipated response to overheated house prices on Tuesday morning, with Ardern saying the housing crisis was “a problem decades in the making that will take time to turn around”.
Concerns about aspiring first home buyers being locked out of the market have swirled for some time, particularly as prices proved more resilient than expected following the Covid-19 pandemic.
But worries about the issue hit new heights earlier this month, when new sales data showed the median house value rose $50,000 in just one month.
The Government had initially planned to announce a suite of measures by the end of February, but that deadline was pushed out by the need to respond to Auckland’s Covid-19 lockdowns.
Fund for infrastructure, land supply
On the supply side, a $3.8b Housing Acceleration Fund will be established to unlock more land for housing and provide the necessary infrastructure for developments.
Housing Minister Megan Woods said the fund would “green light tens of thousands of house builds in the short to medium term”, with investment in infrastructure identified as one of the key areas where the Government could take action.
“This fund will jump-start housing developments by funding the necessary services, like roads and pipes to homes, which are currently holding up development.”
In addition to funding for infrastructure, some of the money will go towards the Government’s Land for Housing Programme, which involves Crown- and privately-owned land being acquired for affordable or public housing and sold to developers on a deferred payment basis.
Separately, Woods said the income caps for first home buyers to receive government support would be increased – from $85,000 to $95,000 for a single buyer, and from $130,000 to $150,000 for two or more – while regional price caps on houses for the financial assistance would also be raised to reflect the state of the market.
Public housing agency Kāinga Ora would also be helped to borrow an extra $2 billion to speed up their acquisition of land for development, while another package specifically targeted at Māori housing was being developed for the Budget later this year.
“The New Zealand housing market has become the least affordable in the OECD. Taking action is in everyone’s interests as continuing to allow unsustainable house price growth could lead to a negative hit to the whole economy.”
As widely expected, Finance Minister Grant Robertson confirmed the bright line test would be extended in length, saying the Government needed to “dampen speculative demand and tilt the balance towards first home buyers”.
However, to incentivise new housing, the test for newly built investment properties would be kept at five years.
In addition, Revenue Minister David Parker said Cabinet had agreed to remove the ability for property investors to offset their interest expenses against their rental income when calculating their tax.
Ministers were still considering whether to remove the ability of property investors to access interest-only loans, with the Reserve Bank set to report to the Government in May on that proposal and any potential debt to income ratios.
“The New Zealand housing market has become the least affordable in the OECD. Taking action is in everyone’s interests as continuing to allow unsustainable house price growth could lead to a negative hit to the whole economy,” Robertson said.
‘No silver bullet’
At her post-Cabinet press conference previewing the announcement on Monday afternoon, Ardern said the Government intended to “tip the balance away from property investors and towards first home buyers” while also curbing rampant speculation.
Decades of failure to invest in housing, the increasing number of speculators in the market, and restrictive planning rules had all contributed to unsustainable house price growth and soaring rent levels, she said.
“Property investors now make up the biggest share of buyers in the market: meanwhile, house prices are rising much faster than wages, so homes continue to climb out of reach for many first home buyers, and the New Zealand housing market has become the least affordable in the OECD.”
While there was “no silver bullet” to fix the problem, the Government had already started work on a number of longer-term fixes, such as Resource Management Act reform, compelling councils to free up land through the National Policy Statement on Urban Development, and working with the Reserve Bank to ease demand.
National Party leader Judith Collins accused the Government of breaking a promise not to change the bright line provisions, and said the wider package could make it harder for first home buyers by driving rents up.
Removing the interest deductions for investors could mean that commercial property owners looking to change their use to residential premises would be dissuaded from doing so, Collins said.
Green Party finance and urban development spokeswoman Julie Anne Genter described the measures as “a step in the right direction”, but said the Government needed to go further and faster to meet the scale of the housing crisis.
Genter said new infrastructure investment needed to go towards environmentally sustainable developments instead of growing urban sprawl, while the Greens wanted to remove the cap on the bright line test altogether.
“A 10-year cap extension just kicks the can down the road a few years, while property speculators will hold on to their properties until the day after the bright line test is over.”
ACT Party housing spokeswoman Brooke van Velden said the Government was “blaming mum and dad investors” without acknowledging the underlying issues with a lack of supply which had led many to invest in the market.
“This is a government failure, plain and simple. We’ve created an artificial shortage of land in a country of plenty,” van Velden said.
Extending the bright line test to solve a housing shortage was “like trying to end a famine by taxing food”, and was likely to lead to rent increases.