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The $64,000 question over the next few months will be on the direction of house prices.
Labour has made a play to dampen the housing market fires. Clearly, it does not know the effect of its measures. Both Prime Minister Jacinda Ardern and Finance Minister Grant Robertson will not be drawn on expected outcomes.
Who can blame them? Economists predicted a 10% fall less than 12 months ago. Instead, prices rose by about 20%.
Labour’s reputation depends on housing. Under its governance, house-price rises have made the rich much richer. The housing dreams of a generation have dissipated. Housing for the poor has become more dire.
This time economists’ forecasts vary. Some see price drops, some see little impact and others wonder if more increases loom.
Neither Ms Ardern nor Mr Robertson dare utter the blunt truth that, especially after the turbocharged past few months, prices need to fall for the sake of New Zealand society and people’s welfare.
Present economic health is built on housing prosperity. Homeowners with increasing value in their homes, and therefore increased apparent wealth, spend more. And so, the money flows.
The Government is on a tightrope. A price crash, as experienced in Ireland after the Global Financial Crisis for example, would bring deep recession and smash the Government’s finances.
Yet, continued increases bring increased inequality and the prospect, as this housing bubble balloons, of an even bigger crash and economic disaster.
One suspects the best case is for a price fall of about 10% over the next several months, just reversing the recent hikes. As that tugs the reins of growth, primary produce prices need to stay firm and the big earners of international tourism and international education need to begin to gee-up the economy in compensation.
House prices stay high enough to encourage building, while investment is diverted more from secondhand houses to productive enterprises.
There then needs to be many years with little or no house-price inflation. Even then, houses will remain too expensive for large slices of New Zealand for a very, very long time.
What a tricky and uncertain balance this is amid the complexity of the economy and human behaviour.
Mr Robertson spoke of pulling “levers”. These include removing interest tax deductibility for landlords, a $3.8billion development infrastructure fund, changes to income and house prices limits for first-home buyer grants, the doubling of the “bright-line” test to 10 years and an offer to Kainga Ora of $2billion worth of loans to buy land.
The biggie is the cutting of interest costs as a business expense. The howls of outrage suggest it will curb investor demand.
But there are consequences for every lever pulled. In this case, more homeowners mean fewer residents per house which means more houses are needed.
Rents could also rise as landlords try to recoup their extra tax, a widespread fear. Countervailing this is that rents respond to supply and demand anyway. Landlords will either make less profit or sell up.
The $3.8billion’s effect might be less than hoped. First, the ways and means that spending is implemented need to be sorted. The Government’s record in related areas is poor. Second, the costs for infrastructure development are huge and the money spread across the whole country over some years might not go far.
The bright-line test, whatever is claimed, is a capital gains tax, and potentially harsh at that. Its impact, however, might be limited because many landlords, including the professional middle classes with a property or three on the side can hold portfolios for long periods.
Mr Robertson has admitted he does not know what will happen to house prices. He must have his fingers crossed that his “lever” pulling helps achieve the best possible balance.
Even then, houses will remain far too expensive.