For Housing, the National Win Is The Best Outcome
The election outcome will not please everyone, but for housing the National win is the best result. New Zealand is currently struggling with a severe shortage of housing. It is showing up in extremely high levels of rental stress and now, despite much higher interest rates, house prices are again on the move.
Policies to increase housing supply have not been working well and scrapping tax deductibility of interest payments was ill-timed given rental market problems. Housing is an even bigger problem now than it was when Labour came into power in 2017.
Not all housing policies expected to be implemented by the Nationals are ideal but they are a lot better than those put in place by the Labour Government.
New Zealand has one of the biggest problems with housing supply in the world. Jim Gleeson, an analyst at the London Housing Authority, provides the best comparison of housing supply globally over time.
His analysis has shown that since the 1990s, New Zealand has one of the lowest number of residential dwellings per person in the world, and this level has become progressively worse over the past decade. The desire to fix this by the outgoing government was apparent but the inability to do so showed the complexity of the issue.
New Zealand’s very low levels of housing supply show up most clearly in the level of rental stress. An analysis of OECD data shows that New Zealand has one of the highest rates of rental stress in the world. A quarter of renters are spending more than 40 per cent of their incomes on rent. Given that individual investors are the major suppliers of rental properties in New Zealand, not allowing tax deductibility of interest rates was an incredibly poorly thought out policy. Allowing for tax deductibility of interest rate payments needs to be re-implemented immediately, a policy change that will happen under the new government.
National is now back in power but will their policies sort out housing? There are definitely many measures which will improve housing supply and make it easier for renters.
As mentioned previously, reinstating tax deductibility of interest rate payments for investors is critical and is one of the policies outlined by National. The bright-line test will also be taken back to two years. Build-to-rent will be investigated as an alternative option to providing rental homes. All of these will ensure greater rental home availability.
Positively, housing supply is a major focus. Building enough homes where people want to live is the best way to ensure affordable housing for both renters and buyers. Kiwibuild, while ambitious, only delivered one per cent of the homes initially promised.
As a first step, councils in major towns and cities will be required to zone land for 30 years’ worth of housing demand immediately. They will however be given flexibility as to how this is done, whether through a mix of low, medium and high densities. Build-for-growth will be introduced with councils being incentivized with $25,000 for every dwelling they consent above average of new consents in the previous five years.
Infrastructure will also be a focus with the Infrastructure Funding and Financing (IFF) Act to be reformed to reduce red tape for developers to fund infrastructure. Importantly, planning and the Building Act will be simplified to get more homes built more quickly and increase competition.
There are some missed opportunities. The first is foreign investment in housing, now allowing offshore buyers to purchase New Zealand homes priced over $2 million. With such a dire shortage of rental properties, a policy which restricts or encourages foreign buyers to buy new homes would provide more rental properties and support the New Zealand construction industry.
There are also some changes to social housing policy, including allowing private community housing providers to compete for government contracts with state landlord Kāinga Ora. More details on this, including a desired target, would be welcome.