Big wins in housing will come from regulation, not budgets

1:18 pm on 19 May 2018

Opinion - Housing was not the centerpiece of the 2018 budget. It committed more money for state houses and incorporated tax changes, but the mini Budget in December had already committed the big money for KiwiBuild. More new spending was limited by fiscal restraint. The big wins in reality will come from regulatory change, and that should be the priority for this government.

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Photo: RNZ / Claire Eastham-Farrelly

The crisis in housing has been building for four decades. It took us a long time to get here, we should not expect solutions to be immediate. But for the lost generations, generation rent, the big change the government needs to make is on rental policy. It does not need a budget to make that change.

To really supercharge state house building, the government needs to inject capital over many years. But that is not politically feasible.

This restraint is visible across the budget, including in its housing portfolio.

Realistically, transformative change is not going to come from more spending, rather from changes in regulatory and economic settings.

Some of those are happening and dont have much to do with the budget per se.

The government has already extended the brightline test from 2 to 5 years. New Zealand's clumsy capital gains tax surrogate. It will not do much, as capital gains taxes do not stop housing bubbles.

Ring-fencing of rental property income will make a change. Many investment properties bought in recent years do not get enough rent to cover outgoings. It mattered less when the losses could be offset against other income and house prices were rising rapidly. The tax system gave a discount for speculating on housing. But that won't be possible now and people will have to chase capital gains with their after tax income like all non-housing investments.

Not strictly within the budget, but initiatives to allow local authorities to collect regional fuel taxes mean that the central government doesn't have to stump up new capital for much needed infrastructure projects in many parts of New Zealand, including Auckland, Tauranga and Queenstown.

KiwiBuild remains the Government's big housing policy. That has already been funded and is not a new budget initiative. There is still no clarity on the exactly how KiwiBuild will unfold over coming years and how the resourcing will be done.

Come election time, KiwiBuild will be the most intensely scrutinised promise.

A surprising omission seems to be funding for an Urban Development Authority, something that will be necessary to really fast track developments.

The budget committed to increase state houses. Increased plans for 6,400 state houses over four years is dwarfed by the current waitlist of nearly 8,000 households.

The neglect in social housing is longstanding. The stock of state houses peaked in 1991 and has stagnated since then. Relative to population, state housing stock is now at the lowest level since the 1940s. Those on the waitlist now have very complex needs and it doesn't look like things will change any time soon.

The planned additional housing will come from some government funding, some borrowing and internal funds. This makes sense. Housing New Zealand has a large asset base, steady income on rents from the government but borrows very little money.

The new coalition government promised to do lots of things and also run surpluses, not tax more and not borrow more. The Budget needed to scuttle claims of economic and fiscal mismanagement. It does that by being restrained in delivering its election and coalition promises. There will be surpluses and net debt will be below 20 per cent of GDP as the self imposed Budget Responsibility Rules committed.

The budget did not bust out anything surprising.

Three years after the publication of Generation Rent it is disheartening to know that the crisis has worsened. But it is heartening to see ambition and willingness to improve in the future. The manifesto we presented, of well worn solutions, are largely being adopted in one form or another.

* Shamubeel Eaqub is an economist and partner at Sense Partners, a boutique economic consultancy. He is one of the authors of a stocktake of New Zealand's housing sector, which was commissioned by Housing and Urban Development Minister, Phil Twyford, and released in February.

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