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Affordable Housing 20 years away - Housing Minister Nick Smith

It will take up to 20 years to address the imbalance between incomes and house prices, Housing Minister Nick Smith told TVNZ’s Q+A programme today that it 

“The target that I've given to my ministry goes back to those long term affordability measures - which is the ratio of incomes to house prices.  That’s what really matters," Mr Smith said.

"Historically that number's been about four for New Zealand.  Currently in Auckland it's seven.  I've set that long term objective of getting it back to four.  That means incomes are growing faster than house prices and you need that repeatedly over a period of a decade or two to get those ratios down," he said.

“If you look at housing ownership in New Zealand, it's been going backwards every single year since 1987. 

"In other words the decline in home ownership from about 75% in New Zealand back to about 65% has occurred over that period.  And if you're looking for some instant magic bullet that the government can wave and change those 20 year trends you're mistaken.  It's about doing the hard yards in those important areas I've identified."

Dr Smith also said a capital gains tax would not make any difference to the housing market.

Yesterday, Finance Minister Bill English ruled out a ban on foreigner buying homes, saying his government was opposed to such a policy (although it had asked Treasury to access, it TV3 revealed). Mr English did not think it would make any difference to the housing bubble.

Ignoring his track record of moderate economic policy when actually in power, NZ First leader Winston Peter has proposed a yet-to-be detailed ban on foreign buyers.

Labour's policy is to restrict foreign home buyers unless they build a new home.

“If we look at that comprehensive independent study that was done by the Productivity Commission, they didn’t raise issues of foreign buyers. It  wasn't mentioned in their 200 page report,” Mr English said. A ban on foreign buyers would only address 3% to 4% of the market.

They did a comprehensive look at this debate around the capital gains tax and they said no it won’t make the difference.  So look across the Tasman to Australia.  They’ve got restrictions on farm buyers. They’ve got a sort of a capital gains tax of sorts and their house prices have gone up by more than New Zealand in the last 12 months.

“The government's measures that we're taking in those five key areas identified by the Productivity Commission, land supply, materials costs, Council infrastructure costs, productivity and compliance costs – they are the bits.  If you are serious about not playing political games, but making changes that will make housing more affordable for our kids and their kids, they are the five things to tackle.”

Watch the full interview here.

Should non-NZ residents be able to buy homes in NZ? Vote in our BUSINESS PULSE poll.

Comments and questions

I can't take anything Smith says seriously anymore on so many subjects. Where to start? On this his latest stuff up, I see state houses planned to be built on the most valuable land in prestige parts of Auckland rather than taking that value and building many more in less affluent areas of need. Still I guess it gives a socialist planner and client an opportunity to give two fingers to the rich neighbours.

They're trying not to create ghettos.

Roll up ! Roll up !
Enter the Housing NZ lottery where losers are winners.
You too can win the chance to live in a leafy street next door to that rich geezer and all you have to do is...nothing.
Remember though the rules have changed and its not for keeps. Work hard and make some dough and you get moved on. So best you sit back, relax and live the dream.

In or about 1987 the government stopped providing assistance to first home buyers (effectively a public private partnership at a consumer level) to buy a new home with a low deposit and low interest fixed rate loan, lower than private markets and so no new low cost housing stock of any significance has been added and previously that is what supported NZ attaining a high level of home ownership.

At the time the programme was dropped they argued the market would ensure this happened and there was no need to be involved in the market.

If any government wants to fix this problem then the answer is simple and the model works support first home buyers directly; the government can take the risk on low interest loans to first home buyers because they simply add it to the Housing NZ stock if any problems occur.

The price of houses in Auckand is now indexed to first-world global houses prices because they are being purchased purchased using global incomes by investors in other high wage economies (higher than NZ).

What Nick smith is really saying is that it is going to take 20 years for NZers to get to the average income of other high wage economies; hopefully and past his watch. Supporting new housing stock for first home buyers is a no brainer and the govt has the muscle - and the affects go right across the economy.

So let's see. You want first home buyers to get assistance for housing? Great. Should be able to fit hundreds of thousands more into the centre of Auckland. Problem solved.

Who said they should be in the centre of Auckland; that's the point we are actually allowing the creation of slums and this will be borne by all NZers.

There is already a market failure otherwise the government would not be providing state housing.

The fact is that if you have a high level of home ownership there is less dependency on the state in the later stages of life. The government has already recognised the problem and intervened in the lives of people from a young age with Kiwi Saver etc and the Super Fund and the funds have gone offshore and put the participants at huge currency risk. I can't think of anybody i know who got a state services loan and is worse off today.

I think most people with a reasonable amount of intelligence would know that this Government does not give a toss about young NZers
wanting to be able to afford to buy a house. Nationals main concern is to be able to count on the property investors and speculators at elections time.
They must have know about the impending housing shortage 5 years ago but did absolutely nothing about it.
Auckland will be surrounded by slums of people renting in another 10 years, thanks to John Key's housing policies.

Why the apparent consensus view that its a one-way street to affordability; that incomes will take 20 years to catch up to house prices? I don't see NZ productivity increasing at pace in the next 20 years, in fact it is decreasing (more and more unprocessed than processed commodities being exported). An alternative view is that house prices will return to more sustainable multiples of income (i.e. they will drop). Where is the discussion of that issue?

What about a quality Board for Housing Corp - not exactly the sharpest tools in the shed & most have dubious track records. Get some real people on the Board

5 years from now you'll find HC has been innovative & lost its lunch to the developers. It'll be a back to the future Solid Energy. Theres billions floating around that has a high chance of being shaved.

How stupid is it going double or quits on whats now premium reality.

If they are really needy of integration how about some in Parnell next to PM??

Entitlement needs addressing & hand up not handout

Housing & families need a whole of government with mandate - sure some are on take but almost all are really needy!!!

Shows Nick Smith for the liar he is. Swore to me until he was blue in the face that the problem was land, and the that the land problem would be back to normal after the resource consents act was sorted.

Good point. My grandparents have applied to council to get their land rezoned from rural to residential so they can subdivide, council have turned around and said that he has to wait for the developer next door to get most of his sections sold first! How is this promoting a free market and healthy competition?

Reading between the lines, this current governments housing policy is working for the (overseas) banks.

Foreign owned banks have (and continue to) raked up loans that local people can no longer support, and the only way they are sustainable is allowing (naive) foreign buyers into the market with speculative money made in China.

Sound like a ponzi scheme to you. Well it is. Made up by speculators, for short term speculators. Isnt that what merchant bankers and money traders do!!

When Chinese money dries up, the truth will be told. The banksters have already factored this increasing risk in, with rising interest rates.

The sad thing is this current government has now made the deposit holders responsible for banks future losses, yet the bank shareholders still take to profits.

There are similarities to this and Chorus, paying huge dividends and then saying they cant deliver on a contract. No guessing on who owns Chorus.

They say all roads lead to Rome, and its spot on and become alot more obvious than before. Blind Trusts might be able to fool some people some of the time, but not all the time.

This is an important point especially when you factor that banks get some sort of leverage with their money as I understand they can lend it several times over whereas local money say though finance companies can only lend dollar for dollar.
Our building code and resource management rules are an important part of the total cost of building because at the end of the day a handy man is simply not allowed to build a house for his family anymore.
This restriction is improving the quality of our housing no doubt(cough) however it robs the working man of the opportunity to get the most from his practicality.
When you look at the glossy images from earlier in our history it begs the question whether this barrier and the demotivation that comes with the restrictions is actually on the whole good for us...
Ironically the timber framed houses that predate the current round of building code and resource management laws give the impression of performing better than the current batch which for all their double glazed glory are prone to leaking and peeling apart.
The other day I was charged $240/hour by a council BC processor while builders are getting $35-60/hour.
It stands to reason that if our governors were charging a lot less then more of us could be building more houses.
Problem is it was actually Helen Clark who defended criticisms of complicating building reforms by saying those in the 'business' of the rolling out those laws that would do well.
My point is the challenge needs to transcend traditional Right-Left tussles.
My intuition is that all this is short sighted and that somehow we would all be better off if those of us whose collars tend to be whiter used our opportunities to make it easier for those whose collars tender to be bluer.
Its good with Anzac day around the corner to remember that these differences are not as important as our unity during times of war.
Rather than hastily cobbling that together when the need arises it might be better to continue to work on a society that makes those moments a lot easier by the way we build during times of peace.

Mr Smiths comments belay the problem with National - a party I quite like otherwise - they are in the back pocket of property investors. Or worse - they ARE massive large scale property owners. A few very choice Parnell and Remuera properties indeed.

Nick Smiths comments are disturbing because they show National has given up on any serious attemps to curb house prices. Any it is venal to claim there are no tools in our arsenal that might be effective. Capital gains will curb investor returns and bring down house prices. Caps on net migration (keeping migration at positive but steady inflows) and keep demand consistent. Already the RBNZ has introduced LVRs and started raising interest rates - fearing a housing bubble that can and will undermine our banking sector. But instead - National just sit on their hands - and say well we've got to get wages - and to close the gap it will take 20 years. Nick should wash his mouth out.

There are two reasons National may be so content to let house prices rocket. One - the cynics choice - is that the Parnell Brigade in power are directly benefiting from rising property prices. There mates are benefiting from rising property prices. Property is our life blood - and no way will National do anything to ruin their wealth, and they their tight bunch of property investor mates.

The second is that they know house prices are hopelessly overvalued. They know that the removal of one of these artificial crutches holding up house prices will send the whole deck of cards crumbling. House prices could fall up to 30 or 40% if a capital gains were introduced whilst interest rates were rising. NO way National wants that on their hands. They want to eek out another term, milk the whole rockstar economy media coverage for all its worth - and declare Mission Accomplished! Then Labour and their socialist mates the Greens come in and will shoot the deck of cards with a bazooka and incinerate the house of cards (when all it took was a slight breath of air to do the job). National will blame Labour and their policies for the disaster that now plagues our economy, with a large number of households with negative equity, huge household debt bills, and all of our favourite savings vehicle up in air...and then they can come back to power for another 3 terms.

You cannot seriously expect any politician to be free of conflicts of interest to tackle this issue. Our Prime Minister lives in a Parnell Mansion. Everyone (over 50) and their mother own investment property. And no one likes to see the nominal value of their house go down, even if they intend to live in it forever.

But homes rising in price this quickly is really just evil. It is socially and morally unjust to entire generations and entire social demographics. I am lucky enough to be making a good living for my age and I want to weep when I think of how leverage I will become - no room for error - a slave to my debt. None of my friends own homes, and until things change, none ever will. It is the only thing people in the 20s and 30s are talking about, and it driving people to despair.

Enough is enough - National - and all your property rich supporters - at what age did you lose your compassion? At what point will enough wealth be enough for you? Do you not realise you are stopping a massive majority of those below 35 from ever own a home, and those that can are condemned to a life with a massive mortgage?

Then for God's sake 1) institute a capital gain on investment property (immediately, and you can spare the family home) 2) control net migration so it stays at consistent levels 3) curb non resident property ownership, like most other countries and 4) stop pressuring the RBNZ, who have been fighting the fight completely on their own.

Very well put.
I think all National politicians should be asked how many rental houses they own or are owned in some form of trust.
I think we would be very surprised at the number.
Vested interests prevent National from allowing house prices to stabilise or fall.
I call this a form of corruption !

1) Capital gains tax doesn't work because we in essence already have one. IRD tax profits if they deem you as trading and Aus has one and you try to buy a place in Syd or Mel even on a good salary.
2) Migration? place would be empty if we stopped them coming in as a decade or more of the go getter kiwis have left already. Auckland may look like Pakistan but at least its better than Huntly.
3) Len Brown needs rich ratepayers and the Chinese appear to be rich.
4)RBNZ are a useless pack of theoreticians who look after the petty cash jar in the International mega corp they think they are part of.

NZ isn't special. Every city in the world that is desirable to live in currently has the same "problem". The only solution to this non-problem is for people to realise they may never be able to own their own home if they live in a desirable city and they should adjust their ambitions accordingly.

I also think it would be helpful for the government to seed areas that are more affordable.

Why does ACC processing need to be in Auckland City? How about Kaitoke? or Whangarei? Why does MPI need to be in the heart of Wellington? How about Morrinsville? or Nelson?

We consistently hear that UFB and technology generally allows people to operate everywhere.

Perhaps one of the weighted requirements for Callaghan funds is that work should be done outside the major centers.

Completely wrong - the most desirable cities in the USA, based on the number of people that are going there, are in Texas, and they are one of the most affordable housing States in in the USA to live in.

The problems that countries like NZ have is a systematic problem, all based around a failing ideology.

The bit I don't understand is are incomes actually going up because most trend graphs would indicate otherwise. Our wages have been falling for almost 20 years and I find it hard to believe they will trend up at such a rate to catch up over the next 20?

Ie stop shutting postal services, ag research, train workshops and other manufacturing in places like Dunedin.

or do you really want to have a house with 10 or so young people from Otago or Manawatu or Northland living next to you as they cannot find jobs in their home provinces?

I hope it is only 20 years.

That is a generation, and that is how long it will take to change the RMA mindset of control that Smith himself was part of nurturing - control to planners and environmental lobbyists, the inherent belief that they know what is best, and the denial of landowners rights.

If ministers like Smith are not retired this election, 20 years won't be long enough to get some affordability and balance back.

The Productivity Commission enquiry into house prices was a total waste of time & money but not surprising as their top man said they can only do projects as directed by the govt of the day.

They should have started with manufacturing efficiency to help survival of our manuf industry; especially with such high exchange rates making exports a real challenge.

So ignore their advice and consider a capital gains tax on houses excluding your home and stop non residents buying clusters of houses free of transfer tax or capital gains tax as in Australia. One comment above is totally wrong as if you rent a house out you can argue it was never bought for the profit on sale; yeah right

The major contributor to unaffordability is greed by the real estate agencies who took every opportunity to push prices up when it was convenient. Thanks to the convenient 'supply-demand' theory prices of some properties in Auckland went up by 25% ($250,000) in just two months. There is no control system in place, anyone can do anything they want and there willalways be someone to buy. National does not care, full stop !!