Don Brash
Don Brash was Reserve Bank Governor from 1988 to 2002, and National Party Leader from 2003 to 2006
Over the last couple of months, there have been lots of media reports which have had the effect of encouraging people to jump back into the housing market.
In mid-September, the New Zealand Herald headlined an article on the housing market with “House prices spring back to life”. The opening sentence of the article was “Auckland’s housing market is turning in time for the traditionally busy spring season, with prices climbing in 76 suburbs in the past three months.”
A month later, the Weekend Herald quoted analysis by Oneroof and its data partner Valocity which showed that “the share of resales [of residential property] making a profit dropped to a 10-year low of 86 per cent – six percentage points lower than the same period last year and well below the 98 per cent peak seen in 2021.” In other words, buying residential property almost always results in a profit.
On 1 November, the front page of the Herald had a banner headline:
“Bounce back”, followed by the comment that “New Zealand’s housing market downturn is officially over… Experts say new figures show the property market has turned a corner – and some predict a significant jump in values next year driven by a new National-led Government and a migrant population boom.”
On the following day, Oneroof sent an email to those on their marketing list quoting economist Tony Alexander expecting house prices to rise 10% in 2024 and 15% in 2025.
Almost nobody in the media suggests that there is any substantial risk of house prices falling from present levels – Mary Holm’s column headed “House prices: Up isn’t the only way”, buried deep on page C12 of the Weekend Herald of 11 November, is an honourable exception. She noted that average house prices have actually fallen on six occasions since 1990. She also noted, accurately, that house affordability “has got silly in this country. House prices relative to incomes… are some of the highest in the world.”
That was true even as far back as 2008, when the John Key Government was elected. At that time, he noted that the median house price in Auckland was already six times the median household income in Auckland – twice the three times multiple which is typical of “affordable housing”. That Government set up the Productivity Commission and the first task the Commission was given was to get to the bottom of why house prices were so expensive.
The Commission concluded that there were four main causes of the problem – and three of those causes were directly related to the behaviour of local governments. By tightly restricting the availability of land on which houses were allowed to be built, local governments guaranteed that section prices would be far higher than would be the case without such tight restrictions and made the business of actually constructing houses inefficient (and therefore expensive) because builders were unable to acquire decent-sized blocks of land. The long drawn-out and tedious decision-making processes of local governments was the third sin of local governments explaining the high price of housing.
Nothing effective was done by the National-led Government to change the situation, and by the time that Government left office in 2017 the median house price in Auckland was not six times the median household income but nine times.
Not long before the 2017 election, Phil Twyford, the Labour Party’s Housing spokesman at the time, wrote an article with Oliver Hartwich, the executive director of the New Zealand Initiative. In it they argued that the best way of making housing more affordable was to make more land available for housing by removing the Metropolitan Urban Limit, which the Auckland Council was using to restrict land availability, and to fund the infrastructure required for additional housing by means of long-dated loans secured over the newly-developed housing. Not long after the Labour-New Zealand First Government was sworn in that year, the Government specifically promised to abolish that Urban Limit in the Speech from the Throne setting out the new Government’s plans for the Parliamentary term. They failed to do so, and not very long afterwards Prime Minister Jacinda Ardern promised that she would not do that.
So perhaps people are entirely justified in ignoring political promises to make housing more affordable. Both National and ACT recognize that housing affordability is a major social issue and both have made promises designed to improve the situation. Both have made commitments to scrap the Natural and Built Environment Act – the Labour Government’s attempt to fix the problems caused by the Resource Management Act – and to put in place legislation which will enable much faster consenting of new developments.
Recognising that absurd section prices are at the core of unaffordable “housing”, the National Party announced several months before the election that they would compel local governments to immediately zone enough land where housing may be built as of right to meet the needs of population growth for the next 30 years. In principle, that should drastically reduce section prices and therefore house prices.
ACT has promised that any government that they are part of would return 50% of the GST generated through the building of houses in a particular area to the local government in that area, thus helping to fund the infrastructure required for the additional housing and encouraging local governments to consent more house construction.
But the market appears to be totally ignoring such commitments, and perhaps that is wise judging from the ineffectiveness in this policy space of both the previous National-led Government and the Labour-led Government which followed.
On 6 November, Bernard Hickey, from his Substack ‘The Kaka’ noted that councillors and mayors in our two fastest growing cities, Auckland and Christchurch, have just pulled the plug on a National-ACT plan to build ‘out’ rather than ‘up’ by rejecting plans for more sprawling ‘greenfields’ developments, but they have also dialled back on up-zoning enough ‘brownfields’ homes.
So what happens? Either the new Government forces the issue, compelling local governments to very substantially free up the land available for housing – thus reducing its price drastically – or we face further absurd escalation in house prices. The social consequences of current house prices are already very serious, with far too many people quite unable to buy a home and facing rents reflecting wildly excessive house prices. Were house prices to continue rising well above the rate at which incomes are increasing, the social consequences would be beyond intolerable.
And not just the social consequences. A few days after the recent election, Sir Bill English was interviewed for Business Desk by Pattrick Smellie. Near the end of the interview, Sir Bill said that if house prices continue to rise, the next time we have a Labour-led Government we will certainly see the introduction of either a wealth tax or a capital gains tax. I agree with him.