Tinkerer-in-Chief: John Key announces changes to the law relating to property speculation. Many of John Key's opponents, and some journalists, accused him of executing a U-turn on the issue of Capital Gains Tax. Labour's Andrew Little disagreed, tweeting that Key's announcement was nothing of the sort. The Prime Minister, said Little, was merely "tinkering with the housing market".
IT WAS THE LEAST THEY COULD DO. Indeed, had they done anything less it might have been mistaken for doing nothing at all. Still, the measures announced to the Lower North Island Regional Conference of the National Party on Sunday by John Key and Bill English were better than nothing. It’s always encouraging to see a government taking law enforcement seriously. Providing the IRD with the resources it needs to enforce already existing legislation against property speculation (including speculation by foreigners!) may even help to slow down Auckland’s runaway housing market. No, seriously, it might!
The government’s announcement is being represented by some Labour and Green MPs (and some of the news media) as a major U-turn. National’s hitherto staunch opposition to the introduction of a Capital Gains Tax (CGT) has, according to this reading, simply melted away.
Labour’s Jacinda Ardern, for example, tweeted archly that she had received the news at a Labour regional conference “otherwise known as the place we come up with ideas that National dismisses and then adopts.”
In a media release, the Greens’ co-leader, Metira Turei, echoed Ardern’s sentiments, saying: “This is a welcome U-turn from the Government. Only last week they were saying that capital gains taxes don’t work, so it is great they have changed their mind so quickly.”
The jibes of its opponents notwithstanding, the term “Capital Gains Tax” appears nowhere in the National Government’s media releases. On the contrary, the measures announced are all couched in terms of making the existing property tax regime more effective.
Interestingly, this is also the way that the Labour Party leader, Andrew Little, chose to characterise the Prime Minister’s announcement: “National is tinkering with the housing market”, opined Mr Little, whose preference for ditching Labour’s pledge to introduce a CGT is well known. He described National’s moves as “tentative and incremental”, and accused the Prime Minister of “creating a massive loop hole with his new ‘bright line’ test which will exempt speculators who hold onto their properties for longer than two years.”
Perhaps Mr Little was recalling the fate of the Third Labour Government’s Property Speculation Tax, introduced to Parliament in 1973 by Norman Kirk’s Finance Minister, Bill Rowling. Ironically, this measure was aimed at curbing a similarly rampant Auckland property market, and it, too, exempted speculators who held onto their properties for longer than two years.
The response of the targeted speculators is well described in a 2010 piece by Fairfax NZ’s business columnist, Bruce Shepherd:
“This tax did alter behaviour, in that those who held real estate held on to it for the requisite period and were gratified to do so as the market rose even faster. Simple, really, with hindsight: if you want to reduce property prices, pretty dumb to compress supply.”
Pretty dumb? Well, yes, it is pretty difficult to argue that the speculators of 2015 will be any less quick to spot the “massive loop hole” in the two-year rule than the speculators of the mid-1970s.
“But, hold on!”, National’s supporters will object. “Isn’t the government putting its thumb on the supply side of the housing crisis scales by bringing more and more residential-zoned land onto the market?”
Yes, they are. Although, it’s also fair to say that the measures adopted to date in no way compel land-bankers to relinquish their property at a rate sufficient to achieve the sudden and appreciable drop in the price of sections that first home buyers are so desperately seeking.
These sorts of voluntary, private sector-driven half-measures will never satisfy the supply side of the Auckland housing market. The National Party is quite simply incapable, for all the obvious ideological reasons, from launching the measures that will deflate Auckland’s swelling speculative bubble.
That task can only fall to a party with an ideological preference for state and municipal intervention in the housing market. Such intervention would necessarily entail the formation of a state-owned design and construction force along the lines of the highly innovative and creative Ministry of Works that grew out of the massive state house construction programme of the 1930s and 40s.
Complementing all its actual house construction, however, a future centre-left government would also need to undertake a thorough-going reform of New Zealand’s antiquated and deeply unjust tenancy laws and regulations. Genuine and long-term security of tenure, of the sort enjoyed by the municipal apartment dwellers of Germany and Scandinavia, would drive the shift in accommodation expectations so urgently needed in New Zealand’s major cities.
The demographic structure of New Zealand is changing very rapidly and it is increasingly clear that nothing short of a revolution in housing policy will allow our planners, developers and builders to keep pace.
Sunday’s housing policy announcements were about the very least the National Government could do. But so much more remains to be done.
This essay was originally published in The Press of Tuesday, 19 May 2015.