Political policy and reserve bank measures needed to address housing crisis

Mid-March. It can’t come soon enough. That’s when the government will reveal solutions for our housing market.

We, the commentators, have become a frenzied and exasperated group of bandits. We opine, whine and chuck around ideas, desperately hoping Jacinda, Grant and Megan will do more than throw a wet tea towel over the top of an erupting volcano.

While there are many possibilities, my favoured combination is a tandem approach of Reserve Bank measures to control investors and political measures to boost owner-occupiers.

Political policy: 5 per cent deposits with a government guarantee

Our First Home Loan scheme is broken. The price caps are now failing with Auckland set at $600,000 and Wellington and Christchurch at $500,000. Income restrictions of $85,000 for a single and $130,000 for a couple also eliminate many. The scheme is restrictive, full of complex little extras and out of date.

We have high earning couples who can afford a mortgage, but are blocked by tear-away deposit sizes. Why does it matter if these buyers earn too much? Why does it matter if they buy a property worth more than the average? Everyone deserves a viable path to home ownership.

Yes there should be rules to prevent abuse of 5 per cent deposits. But the current choking restrictions on the First Home Loan scheme mean owner-occupiers are blocked, while landlords use free capital gains from past leveraging to fuel the buying spree.

A new scheme should allow for 5 per cent and 10 per cent deposits with a government guarantee. Every renting Kiwi should be entitled to this realistic pathway to secure housing.

Political policy: Stamp duty

In order to provide a clear pricing advantage for all owner-occupiers, a stamp duty tax should be introduced at the time a landlord purchases a new rental property (for example 3 per cent of the purchase price, non tax-deductible).

Political policy: Capital gains tax

Raise the brightline test to 10 years for landlords. There could be exemptions for unrented family baches in non-urban areas if this is politically hot.

Reserve Bank: accelerator and brake

LVR and DTI ratios for landlords (Loan to Value ratio and Debt to Income ratio). The Reserve Bank should not be restricted to a one-button 40 per cent deposit regime. We need the flexibility to wind the dial up higher, loosen it off, apply different limits regionally and treat the new-build market separately.

There maybe occasions when landlords have to pay the full purchase price with their own savings. This eliminates the damage of frothy prices caused by leveraging at historically cheap mortgage rates.

Ten ways to communicate with voters

Let’s imagine how a communication strategy would work for a government who wants to take control and present a fair outcome.

1. Speak to a “house price emergency”.

2. Reposition the housing message as one of pricing stability measures for all owner-occupiers and landlords.

3. Position a new policy as protecting our way of life, our core values, the right home ownership and security.

4. Acknowledgement that supply and demand forces are structurally broken and will take time to fix. Temporary measures must bridge the gap to stem excessive housing inflation, prior to longer-term policies getting traction.

5. Present a tool kit for which there are political measures and new Reserve Bank responsibilities. Make sure this is a team approach. The negative message of pitting Governor against Minister needs to cease.

6. Be brave with language. Acknowledge the brightline test is a capital gains tax on short-term investors. Reinforce it doesn’t apply to owner-occupiers. Remind people that holding assets for the long term eliminates this tax and means the intention of the election promise is still intact and rewards responsible long-term landlords.

7. An open apology to first time buyers that Covid related monetary policy, has saved the economy and jobs, but been detrimental to their rights to own their own home. The economy had to come first in a pandemic, but it’s now time prioritise owner-occupiers.

8. An apology to landlords that rentals are an important and necessary part of any housing market, but when strong structural imbalances occur they are required to step back from new purchases. Responsible long-term landlords will always have a place in the market.

9. Acknowledge that the vast majority of landlords are mum and dad type investors saving for retirement, but there are times when this activity is destructive to other New Zealanders. When the market is back in balance, their opportunities to borrow-to-invest will return.

10. Front up to the excessive reporting of the Prime Minister and Finance Minister not wanting anyone to lose money and reverse the message. The intention of their comments was simply another way of saying price stability is paramount. Bedrooms do not fall off houses when their prices reduce and the government can certainly tolerate periods of softening.

As you read this as a voter, have a serious think. If a strategy and explanations come from the point of view of fairness and price stability, would you understand and accept stronger housing market intervention?

Janine Starks is the author of www.moneytips.nz and can be contacted at moneytips.nz@gmail.com. She is a financial commentator with expertise in banking, personal finance and funds management. Opinions are a personal view and general in nature. They are not a recommendation for any individual to buy or sell a financial product. Readers should always seek specific independent financial advice appropriate to their own circumstances.