Housing 'cultural change' called for

Shamubeel Eaqub
Shamubeel Eaqub
New Zealand's fixation with home ownership is causing social inequity and despair, NZIER principal economist Shamubeel Eaqub said yesterday.

If New Zealanders were not cured of their housing fixation, the nation's financial and economic stability would continue to be put at risk every time there was a recession.

People feared being locked out of a traditional route to financial security as nearly 70% of New Zealand's household net worth was stored in housing, he said.

Mr Eaqub released the latest New Zealand Institute of Economic Research report, ''The home affordability challenge'', which said the country's crippling home affordability rates could not be fixed by a single solution, such as changing immigration policy or urban planning rules.

He also ruled out implementing a capital gains tax as a single solution to fix housing affordability. A capital gains tax is a main election policy for both Labour and the Greens.

''There is no one fix. It's not just Chinese investors, it's not just a lack of an effective capital gains tax, it's not just councils' planning rules or cheap credit.''

With so many variables in the mix, the solutions would be complex and perhaps the most effective measures could come from unexpected quarters, such as rental market reform.

Mr Eaqub has often been quoted as someone who prefers to rent than to buy. He said New Zealand had one of the least renter-friendly regimes in the OECD.

Renting was not seen by many as a viable long-term housing option. If tenants were offered better security of tenure and were able to treat their rental like their own home, many could be willing to forgo home ownership, he said.

The report explained New Zealand's obsession with home ownership was one of the key reasons it took so long for New Zealand's economy to recover after the 2008 global financial crisis.

''Our reliance on future capital gains to pay for debt-funded spending caused a long hangover when households realised they needed to pay off the mortgage.''

Home ownership rates were at their lowest since 1951 and rather than bleating about that, New Zealanders should embrace that trend, Mr Eaqub said.

Economies prospered when people invested in business, not just housing.

''We need to create level playing fields for different types of investment and parity between renting and owning to support a much needed cultural change around housing.''

Policy options
• Make renting more attractive: Tenancy policy and agreements provide a lot of flexibility but this is a barrier to regarding renting as a substitute for owning.
• Make land and house supply more responsive: Regulations and local politics mean greenfield development and intensification is not as responsive to demand as it could be.
• Eliminate the property investment bias in banking: Current banking regulation does not fully recognise the systemic risk, and a higher capital requirement may be justified.
• Clarify the tax rules: New Zealand already has taxes applying to investment property but their application is unclear and inconsistent.
• Improve the data: Experimental title transactions data suggests much of the turnover in the housing market is driven by investors and movers, not first-home buyers or new entrants to the New Zealand market.

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