Labour’s housing nightmare

The runaway train that is New Zealand house prices clatters at increasing speed.

This is a disaster, as are rent rises rocketing along the tracks in its wake.

Real Estate Institute figures released late last week for February were again appalling. They showed the highest monthly price rise for 25 years. Auckland houses rose more than $100,000 over the past 12 months. Dunedin homes have reached unimaginable heights. West Coast prices are up 30% in a year.

Labour is to make a series of announcements to try to boost housing supply, deal with property speculators and support renters.

But Finance Minister Grant Robertson has inadequate braking power.

Every option will make little difference or has other potentially harmful consequences.

Labour’s fundamental goals include ameliorating child poverty and inequality. However, soaring house prices and rents swamp all its measures on these issues.

Meanwhile, the waiting list for social housing soars and rent costs decimate family budgets. When rent swallows 40% of income, as it can these days, that leaves little for everything else. And, at the same time, the Government pays $5.5million a day in accommodation supplements.

Meanwhile, too, another large slice of New Zealanders is shut out of buying a home, that concrete stake in your place, your community, your town, your country.

Prime Minister Jacinda Ardern has ruled out a capital gains tax, although a partial de-facto tax has emerged through the extension to the bright-line test. In any case, a comprehensive and fully effective tax would need to include the family home, and that is never going to happen.

Mr Robertson’s advice to the Reserve Bank that it should consider housing affordability in its calculations has made little difference, at least so far.

The split between investors and homeowners for the loan-to-value ratios could widen. But is that just tinkering? Investors, as well, are needed to supply houses for renting.

Likewise, will possible investor restrictions for interest-only loans or debt-to-income limits make any more than a strictly limited difference?

Banning foreign buyers seems to have achieved little.

Income levels and house-price limits under the first-home loan scheme — where a much reduced 5% deposit is required — have become hopelessly inadequate. These must be hiked.

Mr Robertson will look to further types of tinkering to favour first-home owners.

Again, though, will that make much difference? And if support measures actually work, competition between first-home buyers increases. Therefore, prices in that section of the market rise further.Increasing supply should help. But increasing land availability and infrastructure building is slow. Rule changes to increase urban densities also take time and prompt opposition.

Although the KiwiBuild debacle hangs over Labour, the party promotes the Government’s role in building homes through social housing.

The likes of Maori land housing and innovative forms of development could also be encouraged, as Labour tries to work as many angles as possible.

Economists are divided on whether the housing bubble could shrink.

Cheap credit, the perception house buying is a one-way bet and the likes of the massive stimulus about to be injected into the United States all underpin the climbs in asset prices.

New Zealand has also depended on the buoyant property market to buttress spending and growth since the Covid-19 lockdown last year.

An economy built on houses rather than production and services, however, is like a house built on a floodplain: vulnerable to the next extreme downpour.

Rising house prices helped Labour blitz the last election. Not only did they stimulate the economy, but conservative homeowners saw Labour bolstering their wealth.

The leap in prices has pushed Labour into a corner. It cannot afford a price slump because of the economic and personal damage. Yet, that is what is required for progress towards affordable homes.