NZ shows Australia how to address housing policy

By Leith van Onselen

In the lead-up to the 2013 Australian federal election, the issue of housing affordability received zero attention from Australia’s major political parties, and no public debate.

For example, of the 48 discussion papers outlining the Coalition’s policies on just about everything – including such useless topics as “creating a green army”- there was no policy on the single biggest purchase anyone will make and by far the biggest asset class in Australia.

By way of comparison, compare Australia’s neglect of housing policy against the above debate on New Zealand’s “housing crisis”, aired last week on Prime Time, where the issue of housing affordability is ‘front-and-centre’ of the upcoming New Zealand election.

We should also not forget that the RBNZ has implemented macro-prudential controls on riskier mortgage lending, which has helped to cool house prices, whereas the RBA and APRA have pushed-back on such measures in Australia.

The sad thing is that there is a lot the Australian Federal Government could do to help restore housing affordability. Whether by amending the tax system to limit negative gearing (which inflates housing prices without boosting supply) and removing the capital gains tax discount on investment homes, coordinating infrastructure and land release, or providing fiscal incentives/dis-incentives to states and territories on housing supply, there is a clear role for the Federal Government.

In the end, perhaps Australians have ourselves to blame. Governments are inherently reactive and they tend to respond only when community pressure becomes too big to ignore. As long as Australian’s remain silent about housing, so too will our politicians.

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Unconventional Economist
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  1. Maybe S&P will restore it for Australia since the government can’t seem to.

    NZ housing is just as bad, affordable housing is becoming a key election issue. National has the same stupid idea as Oz did, up the first home buyers grants. All that ever did was cause speculation and up property prices.

    With high immigration into NZ locals are forced to live in cars etc… the same as many Oz folk.

    Governments in both countries stabbed us in the back.

    • this was one item before the macro item in my rss feed consolidation

      NZ saw how selling off everything to the Chinese was working for the landed elite in Aus and decided they’d go for a slice of that pretty big pie

      I had the opportunity to see the rates data from Sydney over a period of 8 years. The rate of change in ownership of City of Sydney properties to mainly Chinese owners was draw-droppingly amazing.

      That is the bottom line right-wing game plan for both countries – flog it off as fast as possible while there are plenty of rich foreigners to buy it all.

      It will have all sorts of repercussions other than increasing the number of interesting restaurants.


  2. MP tools in NZ only affected the FHB end of the market and it was investors driving up prices in Auckland.

    If the market has topped out it won’t be because of any significant effect MP tools had, because they were poorly designed.

      • I didn’t read HnH’s account proving MP tools directly affected NZ house prices. Is it behind a paywall?

        I expect they would affect many FTB’s but not investors, and I’m quite certain I’ve read here and elsewhere that investors were driving the market in Auckland.

        I don’t believe that it’s remotely possible to design an MP tool that inhibits FTB’s from entering a market dominated by investors and then claim that the restraints put on FTB’s has affected the market to a meaningful degree.

        I just don’t see any logic in that claim. I suspect that it’s wishful thinking.

        Had NZ designed their MP tools to target the right market segments they would have achieved much greater success, but they got it all wrong.

      • You should buy a membership PF, you could write it off as a business marketing expense.

        Had NZ designed their MP tools to target the right market segments they would have achieved much greater success, but they got it all wrong.

        So house price growth just happened to peak exactly around the time that MP was introduced out of total coincidence?

      • “So house price growth just happened to peak exactly around the time that MP was introduced out of total coincidence?”

        Got a chart showing comparing the most recent peak growth rate to previous cyclical upswings? MP may be having some effect, but it could truly be coincidental also (given MP was introduced as prices went bananas).

    • So what you’re saying is that it’s right but for the wrong reason.

      Hell – I’d be ok with that. Do something, try something – for god’s sake! Instead, we get these impotent moans about what a disaster it will be if we even thought about it!


      On a slightly tangent point – I’ve been listening to some ABC station on the Northern Rivers range and every night they have a not-so-quick summary of the ICAC proceedings. I have listened in horror at the litany of corruption cases up and down the NSW coast.

      If you want another reason why things will not change, this is it: developers paying polies to do their bidding. If you think US is ahead of us with regards to lobbying – boy – do I have news for you!

      • That’s exactly the point Jason, yes some investors do borrow more than 80%, but they aren’t restricted. The RBNZ lowered the number of buyers above 80% but didn’t stipulate which buyers, they left it to the banks to determine who got a loan and who didn’t.

        By doing that the RNNZ turn the decision into a commercial decision resting on which applicant is worth the most to the bank rather than which is the most suitable borrower.

        If you don’t have commercial/business experience or if you haven’t worked for a bank in lending then this point will probably go right over your head, but it’s an extremely important point. When the system makes banks choose who has access to credit and who doesn’t, then credit will go to those with the right connections, or those who the bank makes the most dollars out of – and that ain’t an FTB.

        Think about this subject with a little bit of depth instead of reacting to superficial and emotional tugs, just this once.

      • Peter, the point is that heat had to be taken out of the market quickly and both investors and FHB’s were impacted. If the policy helped restrain prices, which the evidence and logic suggest it did, then FHB’s benefit in terms of affordability, which is the end game. You have to admire a country that makes targeted, well thought out and timely policy – maybe not perfect (what policy is?), but with an overall net positive outcome. The other point on NZ’s property market, it has always been susceptible to investor activity in cycles which is driven along to an extent by negative gearing with nil stamp duty and nil capital gains tax. Interesting no one seems to makes claims that high income earners reap the majority of the benefits, possibly because their top personal tax rate is only 33%…

      • @ stitches – which markets have fallen as a result of the introduction of MP tools in NZ – Auckland certainly hasn’t. The only thing to crow about is that the rate of gains have slowed a little – big deal, we have Xmas coming up now so that should fix that.

        Sorry but both investors and FTB’s weren’t impacted equally – that is the point. I will explain why –

        Imagine that you are a bank manager – you have two credit worthy borrowers both applying for finance to buy a house, but credit is rationed and you can only approve one loan.

        The FTB’s are a nice couple but they have almost no value to your bank as a client because they are just starting out.

        But the investor already has 4 loans with your bank, several insurance policies, his Superannuation, and several other business related facilities, all of which earn the bank good money.

        Now if you are a commercially minded manager who takes the connection value into consideration when making decisions that affect the future income of you employer and thus your bonuses, who do you lend to?

        Does that explain it clearly for you? There is no other commercial decision that the bank manager can make if he wants to keep his job.

      • Hi Peter,

        If you read my comments again, I did say that the policy wasn’t perfect but the outcome is still positive i.e. reduced or otherwise lower levels of house prices. The Auckland market has actually been coming off it’s price growth trajectory from early this year which is not the case in our major capitals. I fully understand the simple commercial point you are now labouring on, but as long as we have a policy mind set that says “no one can be disadvantaged”, as is the case with most policy discussion in Australia including changes to the GST, there will be a lot of discussion but no action. I also don’t put FHB’s in any sort of priority queue for welfare or special consideration in policy making – it is common for FHB’s in Auckland for example to pay $600K for their first house, as it is here.

    • What’s your point? Sydney’s house prices are going through the roof too – more so than Auckland’s – and yet there is zero discussion from Australia’s politicians and minimal concern displayed from the RBA. Now compare this with NZ, where housing is front-and-centre of discussion in the lead-up to the election.

      NZ at least recognises there is a problem, which is the first step in any reform process.

      • There is a point. In fact I think that the politicians in NZ are either fools or they reacted in a knee jerk manner to the public outcry and in so doing they hurt the most vulnerable section of the market.

        Can you tell me why they didn’t move to curtail investors and overseas buyers instead of FTB’s who just want a basic home?

        Why didn’t they leave FTB’s alone and restrict investors to 80% or less and restrict overseas buyers, if they had wanted to assist young Kiwi’s buying their first home. What the did to their young was sinful and the MP tools they used were worse than a bad joke.

        Seriously lets be honest about this subject.

      • The vulnerable will be thanking them in the not to distant future.

        Edit: An easy enough fix for investors too is to make sure that investors cannot use just housing equity to reduce their LVR. Simple!

      • “NZ at least recognises there is a problem, which is the first step in any reform process.”

        NZ is clearly further along than Australia, but we have the inquiry into affordable housing and I’ve heard there will be more proposals coming from Xenophon & Co in the very near future.

        I agree with Peter that NZ’s MP policy appears to have hit FHBs hard and left investors unscathed. More thought needs to be given to how the MP tools are implemented. Anytime I’ve raised this on MB it just seems to get shot down… e.g. don’t care, just do it from HnH:

      • Yeah NZ are showing a lot of leadership here. It’s debated. There’s policy. There’s IR rises. Impressive.

      • The most vulnerable are the first time buyers and MP has influenced their behavior, therefore, in a roundabout way, they have been protected to the point where they are restricted from all-or-nothing (or at least a miserable lifestyle where they live at the whims of the housing and labor markets).

        As for the investors, if they want to punt on $600,000-$800,000 homes waiting for the Chinese, let them and the banking brethren shift all to black and take their chances.

      • “There is a point. In fact I think that the politicians in NZ are either fools or they reacted in a knee jerk manner to the public outcry and in so doing they hurt the most vulnerable section of the market.”

        I think you mean the central bankers, not the politicians. MP was implemented by the RBNZ, not the NZ govt. Both entities are independent. Correct me if I’m wrong.

      • Further to the comment below of mine, Governor Graeme Wheeler of the RBNZ was working in the United States at the time with the World Bank when the 07/08 GFC hit. In my view he is a rarity in the Central Bank community with a deep understanding of the drivers and sheer destructiveness of housing bubbles.

        In political terms the RBNZs macroprudential initiatives have been hugely important … indeed critically important … in pressing the lethargic (a skill PM Key has in abundance) politicians at Central and Local level to BELATEDLY (read my narrative within a post below on PM Key) get on with land supply and infrastructure financing issues.

        I know these dilatory politicians detest the pressure from the RBNZ.

        I have enormous respect for Governor Wheeler and the RBNZ people.

        As a long-term advocate on these issues, I can say that it is thanks to Governor Wheeler and the RBNZ, we FINALLY have the “machinery of government” actually dealing constructively with these issues in New Zealand.

      • “Can you tell me why they didn’t move to curtail investors and overseas buyers instead of FTB’s who just want a basic home?”

        An investigation into that question might ask “do most of NZ’s politicians own an investment property portfolio just as Australia’s do?”

    • With all due respect to Peter Fraser, I think he is missing a few important points regarding the Governor Wheeler and the RBNZ MP objectives.

      The Central Banks primary responsibility is to protect the financial system … and I explain within NEW ZEALAND’S BUBBLE ECONOMY just how vulnerable the NZ financial system is …

      Peter … I would be most grateful if you could explain to MB readers, what would happen if the current housing market with a value of $NZ700+ billion with about $NZ400 billion of bubble value incorporating about $NZ100 of bubble mortgage debt, is expected to cope if the bubble crashes, with the Banks Capital Base just $NZ29 billion ?

      In normal markets housing does not exceed 3.0 times household incomes or about 1.2 times GDP. Has anything been learnt out of the Irish 07 / 08 experience ?

      Ireland’s major metros went from a Median Multiple of 4.7 down to 2.7. The Australian and New Zealand major metros have more Multiple Stretch than that of about 5.5 refer Schedule of 10 DAnnual Demographia Surveys at ).

      • Hugh you lose credibility when you start comparing countries that issue their own currency with Ireland who doesn’t.

        You have been banging on about your 3.0 multiple for as long as I can remember but it still doesn’t make it right, it’s merely your rather outdated concept.

        NZ has about $700B worth of housing and about $170B worth of housing debt which means that households owe 24.2% of the value of their housing – when the USA crashed US households owed 55% of their housing value to lenders. Even if the value of NZ housing fell by 50% they would still owe a lower % of the value of their housing than the USA did at the peak.

        Why don’t you work back over the last 30 years and make a comparison, but accept that the USA started from a higher debt position than NZ or Australia and adjust your graphs accordingly instead of assuming all countries started from the same % debt level, then you might understand why you have been wrong for more than a decade.

      • Peter … thank you for your comments.

        You may like to check the 2008 4th Edition Demographia Survey (data 3rd Qtr 2007) … specifically Table 5 Page 10 … where at its peak, the US metros overall were at 3.6 Median Multiple … way below where we here in the Antipodes are today at about 5.5 MM overall.

        Refer also to what Dr Thomas Sowell of the Hoover Institution had to say on housing bubbles (access via ). The major problems and the most money was lost in the bubble Stats of California, Nevada, Arizona and Florida, because of the bubble Multiple Stretch.

        The issue of Multiple Stretch is hugely important.

        While the cheap Euro money played a significant part in adding rocket fuel to the Irish housing bubble … the core problem was the structural rigidities of its British style planning system … being extremely similar to our own here in New Zealand and Australia.

        This material with respect to Ireland from a General Email of mine may be of some assistance …

        Irelands ‘bad bank’ says it will fill Dublins housing gap … The Guardian … h/t Catherine Cashmore Melbourne Au ..

        National Asset Management Agency says it could deliver up to half of the 8,000 to 10,000 new homes needed annually in city ..

        Only 1,600 new houses were built in Dublin last year as the construction sector struggled to emerge from the property crash.

        … and back late may …

        How you can stop a property bubble from bursting … Colm McCarthy … Irish Independent

        “… There was then, as there is now, excess demand in Dublin and a shortage of zoned and serviced land in the right areas. Builders decamped for the midlands, many of whose towns and villages are now disfigured with vandalised and unsaleable ghost estates. The builders chose these locations not to meet local demand but because they could get planning permission in these areas. The demand was expected to come from Dubliners expected to commute.”

        Question … why didn’t Germany have a housing bubble then ?

      • Hugh the USA didn’t experience a crash because house prices rose too high, it was because they lent money to the wrong people, ones who wouldn’t pay it back, that led to a freeze in the financial system and the rest is history..

        You can throw away your multiples, they don’t work and they don’t give any accurate comparisons between nations. Some countries tax housing upfront like Australia and some tax it retrospectively like some of the US states. There are also different tax rates, different levels of assistance with child care and other forms of middle class welfare. You will be chasing your tail forever with multiples.

        If you cared to analyse housing in different countries and analysed them honestly you would get different results – but you won’t so be prepared to be wrong forever.

        Germany didn’t have a crash because the rent laws are so anti-landlord that no one will invest in housing in Germany. Germans buy property throughout Europe but not much in Germany. They also build a lot more social housing than we do and that makes a difference. But don’t worry they are on their way towards a housing boom because the very laws that made housing unattractive for investment is causing a shortage of supply even in a country where the population growth has stalled. As you can see there are major differences between Germany and Australia, so why bother making the comparison.

        Even your precious Texas will rise beyond the affordability of average home buyers within a decade unless the USA keeps a lid on oil prices.

        Nice talking to you.

      • Peter … sadly your comment below clearly illustrates you have no knowledge whatsoever of structural urban economics …

        “You have been banging on about your 3.0 multiple for as long as I can remember but it still doesn’t make it right, it’s merely your rather outdated concept.”

        Do read closely what I said in the SMH a few years back … REPORT: HOUSING AFFORDABILITY OUT OF SYNC WITH INCOMES …

        … and too . a clear and easily understood definition (even to Bankers … hopefully) of an affordable housing market …


        For metropolitan areas to rate as ‘affordable’ and ensure that housing bubbles are not triggered, housing prices should not exceed three times gross annual household earnings. To allow this to occur, new starter housing of an acceptable quality to the purchasers, with associated commercial and industrial development, must be allowed to be provided on the urban fringes at 2.5 times the gross annual median household income of that urban market (refer Demographia Survey Schedules for guidance).

        The critically important Development Ratios for this new fringe starter housing, should be 17 – 23% serviced lot / section cost – the balance the actual housing construction.

        Ideally through a normal building cycle, the Median Multiple should move from a Floor Multiple of 2.3, through a Swing Multiple of 2.5 to a Ceiling Multiple of 2.7 – to ensure maximum stability and optimal medium and long term performance of the residential construction sector.

      • No Hugh, I never read what you have to say because frankly it’s rubbish that can’t be supported in the real world.

    • Tanmedia … many thanks for drawing Whitmans comments to our attention. Lets hope the RBNZ Macroprudential Doubting Thomas’ in Australia read his comments closely.

      I wonder if the nice chap at the back of the class Peter Fraser will learn anything ?

    • That’d be great for NZ and terrible for us. Key is a banker and one of the worst politicians I have ever seen. He has replaced several elected bodies with his own cronies, given almost unlimited power (override all but 6 acts of parliament with nothing more than a sign off from the GG) and almost gleefully sold anything of value in christchurch while watching the insurance companies profit and doing nothing to help.
      Given the chance he would lower wages to compete with China, privatise health and education and scrap ACC.
      I’d rather have Tony, I’d rather have Palmer, I’d rather have 3d1K for PM than see John Key anywhere near any country I plan to live in or have friends or family live

      • Yes, I actually blame Key’s connections with the finance sector, that National did not hit the ground running with reforms in 2008.

        Had National won in 2005 with Don Brash as their leader, urban growth boundaries would have been abolished by lunchtime – and NZ really WOULD have been miles ahead of the pack globally on this issue.

        This is not the only issue Key moved National to the Left on.

      • Phil … You are correct.

        Here is what NZ PM John Key said in a WSJ report by Mary Kissel 7 March 2009 … YOU CANT SPEND YOUR WAY OUT OF A CRISIS …

        … following what then Housing Minister Phil Heatley said 26 January 2009, at the time of the release of the Demographia Survey … GETTING BETTER BALANCE IN TO THE HOUSING MARKET …

        … and later in 2012 (when we were still having problems with Mr Key) around the time of the release of the Governments major announcement on housing (access … ) I wrote … HOUSING: MR KEY – GET ON THE PROGRAMME …

        We don’t know exactly what “Can Kicker” Key was up to early 2009 … and it sure would be most helpful indeed if enterprising journalists could quietly dig around on this important issue.

        I have long been of the view John Key always aspired to that job for his own vanity … not to actually do anything. A rather telling indication of this was the wedding of Prince William and Catherine at Westminster Cathedral, with the ambitious John Key grinning like a Cheshire Cat as he was bowing and scraping to the English toffs making his way down the aisle. Talk about pathetic !

        I rate him as the best “grinning” Governor General we have ever had !

  3. reusachtigeMEMBER

    LOL… The Australian public don’t give a rats arse about housing policy, they only care about housing profits. They’ve done well!

    • Yeah you don’t hear the term ‘macroprudential’ at many barbeques. And most think that ‘monetary policy’ is something you leave to your accountant!

    • reusachtige … I suspect you are very likely wrong on that issue. Access to read the late 2012 Television New Zealand poll.

      A year or so back, as I recall, the ACOSS people in Australia heavily researched this issue … and found at the time Australians were generally very concerned about inflated housing prices. A SMH poll just a week or so ago found as I recall about 90% of respondents (about 7,000 I think) are of the view housing is over-inflated.

      With 10 Annual Demographia Surveys ( ) I would be most surprised if peoples attitudes are that much different in Australia and New Zealand.

      As I note in another post, the major difference between the two countries is the Australian political, media and commercial elites problem.

      The relative reporting performances on these issues of Fairfax in Australia and Fairfax in New Zealand is very telling indeed. I am most impressed with the performance of the responsible mainstream journalists here in New Zealand.

  4. Leith … You are spot on. Great article !

    The core problem in Australia is that Aussies are remarkably STILL controlled by their inept political, commercial and media elites … a common characteristic of resource dominated economies. Much the same political characteristics as found in the Middle East and Russia for example.

    It was the protectionists within the Australian property sector who derailed the housing issue at the time of the Productivity Commission report in 2004 … and again in 2007, as I outlined in late 2007 …

    The Need For Clarity

    Australians need to “wise up” to these protectionist clowns and figure out ways of dealing to them effectively … head on. When push comes to shove, they are very soft bellied. Just corporatist nobodies in the main.

    I have posted extensive material on the New Zealand political progress on this MacroBusiness thread over the weekend …

    ASX at the close | | MacroBusiness

    There is no “one right way” of handling these protectionist clowns. It’s up to people on the ground to figure out ways of beating them.

    Here in New Zealand we do want to see political progress in Australia on these important issues … and wish the MB team and the many others involved every success.

    Go for it guys !

    Hugh Pavletich
    Co-author Annual Demographia International Housing Affordability Survey
    New Zealand

  5. “removing the capital gains tax discount on investment homes”

    Ok, this is about properties, but because of REITs, etc., it would be difficult to draw a clear line between shares and properties.

    As I stated before several times, THERE IS NOTHING FAIR ABOUT TAXING CAPITAL GAINS AT FULL RATES without proper compensation.

    If you want to do it fairly, at least one of the following must occur for fairness.

    (a) Allow capital losses to be deducted from other incomes OR
    (b) If capital losses can only be deducted from capital gains, as they are now, then (1) the CGT paid on the capital gains in the past (i.e., prior to the capital loss event) must be refunded until all such past capital gains are exhausted for offset, AND (2) both the capital gains and the capital losses must be adjustable for inflation.

    This second point may require clarification.

    Suppose an investor bought and held two stocks, A and B, for 3 years, and the CPI rose by 10% in those 3 years – a common occurrence. Incidentally, stock A doubled while stock B didn’t change its nominal price in those 3 years. The said investor disposed both stocks after the 3 years. I am asserting that not only the capital gains that arose from the sale of stock A needs to be discounted by 10% but also the sale of stock B should result in the capital loss of 10% and that the investor should be able to use that capital loss to reduce the realized capital gain that arose from the sale of stock A.

  6. Wondering why political progress on the housing affordability issue is such a hassle ???

    Here is a great history lesson, kindly bought to our attention by Brendon Harre here in Christchurch … on the long struggle involved in getting the cruel United Kingdom Corn Laws repealed in 1846 …

    … driven by the great advocate Richard Cobden …

    … on a lighter note, here is the amusing I WANT TO BE A CRONY Youtube video …

  7. High house prices ‘a choice: (NZ DEP PM BILL) English … Fairfax New Zealand

    “That’s a choice made by New Zealand,” English said. “It’s not a fact of nature.

    “We’ve chosen a very expensive rapidly rising housing market”, with the price of land rising because of restrictions on new supply, and planning rules adding to costs.

    “In Auckland it’s basically illegal to build a house that’s worth less than half a million,” English said.

    The only houses built below that cost were as a result of a “sweetheart deal” between Auckland Council and Housing New Zealand.

    “Otherwise there’s basically no new supply. That is fundamentally wrong and we’re going to work until we fix that problem.”

    More land had been consented for residential housing development in the last nine months than in the previous nine years, English said.

  8. Christchurch Mayor calls for rethink on council structure … Lois Cairns … Fairfax New Zealand

    Pavletich comment on thread …

    Congratulations Mayor Lianne Dalziel and Council team !

    Former Labour Central MP Brendon Burns summed up the issue most eloquently in a The Press Op Ed February 2012 … … SHINING A LIGHT IN THE DARKNESS … soon after the 4,000+ Peoples Protest (google search CHRISTCHURCH: THE WAY FORWARD ).

    Here is what Mr Burns had to say …

    “For this city to best recover from its seismic nightmare, the process of decision- making needs to be inverted to truly empower communities. Such a radical change is very difficult to accept for anyone – of any political persuasion – who happens to be in power.”

    “To date, the required response is tokenistic. A top-down command and control system may be appropriate in the days after a disaster but not in a recovery which will take years. Among the ultimate victims will be those who talk the talk but don’t walk the walk when it comes to true community engagement. Just look at the Christchurch City Council.”

    … and too … the Local Authority de-amalgamations underway in Queensland … recent Queensland State Government release …

    De-amalgamation … Queensland Department of Local Government …