Political policy and reserve bank measures needed to deal with the housing crisis
NOTICE: Half-March. It can’t come soon enough. This is when the government will reveal solutions for our housing market.
We, the commentators, have become a bunch of frantic and exasperated bandits. We voice our opinions, moan and throw out ideas, desperately hoping that Jacinda, Grant and Megan will do more than throw a damp cloth on the top of an erupting volcano.
While there are many possibilities, my favorite combination is a tandem approach of Reserve Bank measures to control investors and policy measures to stimulate homeowners.
Political policy: 5% deposits with government guarantee
* Did you think the real estate market couldn’t get crazier? You are wrong
* Good debt, bad debt and positively bad debt
* New Zealand’s economy is a housing market with pieces nailed down
* Investor ban would cool our boiling housing market
Our first home loan program is broken. Price caps are now failing with Auckland set at $ 600,000 and Wellington and Christchurch at $ 500,000. The income restrictions of $ 85,000 for a single person and $ 130,000 for a couple also eliminate many. The program is restrictive, full of complex little extras, and outdated.
We have high income couples who can afford a mortgage but are stuck with the size of the detachable deposits. Why is it important that these buyers earn too much? Why is it important that they buy an above average property? Everyone deserves a viable path to home ownership.
Yes, there should be rules to prevent abuse of 5 percent deposits. But the current stifling restrictions on the first home loan program mean homeowners are locked in, while homeowners use free capital gains from past leverage to fuel the buying frenzy.
A new system is expected to allow deposits of 5% and 10% with a government guarantee. Every Kiwi who rents should be entitled to this realistic path to obtaining housing.
Political policy: stamp duty
In order to provide a clear tariff advantage to all owner-occupiers, a stamp duty should be introduced when a landlord purchases a new rental property (e.g. 3 percent of the purchase price, non-tax deductible) .
Political policy: capital gains tax
Raise the Brightline test to 10 years for homeowners. There could be exemptions for non-rented family tarps in non-urban areas if this is politically hot.
Reserve bank: accelerator and brake
LVR and DTI ratios for donors (loan-to-value ratio and debt-to-income ratio). The Reserve Bank should not be limited to a single 40% deposit scheme. We need flexibility to raise the dial higher, loosen it, apply different limits regionally, and treat the new build market separately.
There may be times when homeowners have to pay the full purchase price with their own savings. This eliminates the sparkling price damage caused by leverage at historically low mortgage rates.
Ten Ways to Communicate with Voters
Imagine how a communications strategy would work for a government that wants to take control and present a fair result.
1. Talk to a “real estate price emergency”.
2. Reposition the housing message as one of the price stability measures for all homeowners and owners.
3. Position a new policy as the protection of our way of life, our fundamental values, the right to property and security.
4. Recognition that the forces of supply and demand are structurally broken and that it will take time to correct. Temporary measures must close the gap to stem excessive housing inflation, before longer-term policies develop.
5. Present a toolbox for which there are policy measures and new reserve bank responsibilities. Make sure it is a team approach. The negative message of pitting the governor against the minister must end.
6. Be brave with the tongue. Recognize that the Brightline test is a capital gains tax on short-term investors. Reinforce that this does not apply to owner-occupiers. Remind people that holding long-term assets eliminates this tax and means the intent of the campaign promise is still intact and rewards responsible long-term owners.
7. Apologies open to first-time buyers that the monetary policy linked to Covid saved the economy and jobs, but infringed on their rights to own their own home. The economy was supposed to come first in a pandemic, but now is the time to put homeowners first.
8. An excuse to landlords that renting is an important and necessary part of any housing market, but when strong structural imbalances occur, they are required to step back from new purchases. Long-term responsible owners will always have a place in the market.
9. Recognize that the vast majority of homeowners are mommy and daddy-type investors saving for retirement, but there are times when this activity is destructive to other New Zealanders. When the market is again balanced, their opportunities to borrow to invest will return.
10. Before the excessive reporting by the Prime Minister and the Minister of Finance, not wanting anyone to lose money and spilling the message. The intent of their comments was just another way of saying that price stability is everything. Bedrooms don’t fall out of homes when their prices drop, and the government can certainly tolerate downturns.
As you read this as a voter, think hard. If a strategy and explanations come from the point of view of equity and price stability, would you understand and accept stronger intervention in the housing market?
Janine Starks is the author of www.moneytips.nz and can be contacted at [email protected]. She is a financial commentator with expertise in banking, personal finance and fund management. Opinions are personal opinions and are general in nature. They are not a recommendation for anyone to buy or sell a financial product. Readers should always seek specific independent financial advice tailored to their own circumstances.