Housing Affordability for First Home Buyers
Defining Housing Affordability
Affordable housing is important for people’s wellbeing. For lower-income households (such as first home buyers), high housing costs relative to income are often associated with severe financial difficulty, and can leave households with insufficient income to meet other basic needs such as food, clothing, transport, medical care and education. <ref name="The Social Report">The Social Report (2010) Housing Affordability,http://socialreport.msd.govt.nz/economic-standard-living/housing-affordability.html (accessed October 1 2013)</ref> For a house to be affordable the international standard sets the price at three times the median income of the buyer.<ref name="last">Pavletich, H. (2013) International Housing Affordability, United Kingdom:Bursleigh.</ref>
Key Drivers of Housing Affordability for First Time Buyers
- House Prices
- After Tax Income
- Disposable Income
- Interest Rates and Mortgage Payments
The First Home Buyer
The first home buyer has been defined as an individual in the 25-29 year old age group that buys the lower-quartile priced house with a deposit<ref name="Roost Mortgages">Roost Mortgages (2013), Roost Home Loan Affordability Reports, www.roost.co.nz (Accessed September 30 2013).</ref>
Indicators of Housing Affordability
Statistics New Zealand identifies several specific indicators of housing affordability including, housing cost to income ratio, equivalised household residual income, crowding index and utilisation of national accommodation supplements. <ref name="Bleh">Statistics New Zealand (online) 2013: Statistics on Housing Affordability. http://www.stats.govt.nz/browse_for_stats/people_and_communities/housing/statistics-on-housing-affordability/affordability-measures.aspx (accessed 17 September 2013).</ref> However, data for these indicators is very difficult to obtain and regionally specific. Therefore, this project will consider broader trends from throughout New Zealand, referring specifically to historical causes, stakeholder responses, and further suggested market control measures.
However, it must be noted that house prices at three times the median income is the international standard for affordability.<ref name="Nick Smith"/> Average house price to average gross individual income ratios, are relevant in understanding which regions are closest to meeting this international standard.<ref name="Sarah">The Treasury (online) 2013): Affordability of Housing: Concepts Measurement and Evidence. http://www.treasury.govt.nz/publications/research-policy/wp/2006/06-03/08.htm (accessed 4 October 2013).</ref> The New Zealand Treasury has collated data based on this ratio, identifying Southland as the most affordable region in New Zealand for purchasing a house.<ref name="Sarah"/>
History of Housing Affordability in New Zealand
Housing affordability in New Zealand is at the forefront of the political agenda today and has been a hot topic in recent years. The price of housing in New Zealand has increased by a staggering amount in the past thirty years due to both social and political changes. These changes have made it much harder for the average homebuyer to get their ‘foot in the door’ and purchase their first home.A series of events have triggered rising house prices, turning the market into the unaffordable state it is in today.
The Twentieth Century
New Zealand at the turn of the twentieth century was seen as the land of plenty- a place where people could own their own homes and section of land. This can be characterized by the post Second World War welfare state reforms. Servicemen who had returned from the war formed families and the demand for housing skyrocketed. Construction and the purchasing of land was made easy by the government of the time which was relatively prosperous following the Second World War economic boom. This was a time where the government felt a certain social responsibility to the returning servicemen.<ref name="Bassett & Malpass"/>
From the 1950s to 1970s, construction was booming in New Zealand. Tighter planning restrictions were coming into play, but the economic boom of the period was fuelling the construction of thousands of homes each year. The new concept of state housing was introduced in 1937 Michael Joseph Savage under a Labour lead government, and from then on around 30% of the houses built each year were state houses. From 1951 tenants of these state owned houses were given the option to purchase the homes at the reduced price widening the bracket of home ownership in the country. <ref name="Bassett & Malpass"/>
The Government through the ‘State Advances Corporation’ provided 3% loans making home ownership much easier with low interest rates. This coupled with the growth of cities and extensions of motorways in cities like Wellington and Auckland meant that more people could live further away from the city and commute in. The growth of outer suburbs such as Titahi Bay and Porirua in Wellington meant that housing was more affordable for everyone and not just the select few who could afford to live close to the city centre <ref name="Bassett & Malpass"/>.This growth lead to ‘urban sprawl’ and contentious avenue for the Town and Country Planning Act 1977, which was initiated to try and designate residential areas and preserve farmland in New Zealand despite the slowing construction market.
Fluctuations of the Housing Market
The Oil shocks and financial crisis of the 1970s was a large burden on western civilization and also on New Zealand. This had a large flow on effect to New Zealand stagnating the economy for around twenty years till the early 1990s. This stagnation of the economy meant that the government was far less prepared to hand out low interest loans as the days of New Zealand’s thriving economy were over. Less money being leant to buyers meant that housing started to become more unaffordable. This coupled with cultural and welfare changes meant that housing construction was slowing and was never to reach its peak of 34,000 homes in 1974 <ref name="Bassett & Malpass"/>.
While many efforts were made to try and combat this housing shortage and lag in construction, the 1980s proved to be a very difficult time for New Zealand. The Muldoon lead National Government stimulated wage price freeze, which in turn did not level out land prices. The economic stagnation that had engulfed the country meant that large loans could not be given anymore. During the 1990s the economy picked up, with the benefits of the 1984 Lange Labour governments ‘free market economy’ stance kicking in. The new building codes of the 1990s and the subsequent Building Act 1991 meant that alternative materials could be used for building increasing the availability of materials and making it more cost effective to build homes.<ref name="Bassett & Malpass"/>
Despite these changes to building materials and the growth in housing ownership rates, the impending doom of the ‘Leaky home’ saga hindered growth significantly. The change in materials had lead to a vast number of homes being constructed with ill-equipped materials for the New Zealand climate leading to damp timber, cracks and other issues costing the Government up to around $3 billion in claims. The enormous amount of money spent (and still being spent on trying to fix this problem) meant that again new building codes were amended again, namely the Building Act 2004 which put changed specifications for building materials, making criteria for building much more stringent. Planners and Inspectors had to be far more thorough when undertaking inspections and leading to tighter controls under the Resource Management Act 1991. The housing boom of the early 2000’s has made it even harder for home- buyers (especially first home buyers) to get their foot in the door. Auckland especially is faced with this problem if land is not freed up and construction stepped up then prices will continue to steeply rise <ref name="Mart">Sherwin, M. (2012) Housing Affordability Inquiry, The New Zealand Productivity Commission</ref>.
Today there is a shortfall of over 10,000 homes per annum, staggering debt and a slowing economy. A Treasury Report analyzing Housing Affordability in New Zealand showed that from 2004 to 2008, the median house price increased by 50% reflecting the ever-growing price of houses in New Zealand <ref name="Meehan">Meehan, L. and Law, D. (2013) 'Housing Affordability in New Zealand: Evidence from Household Surveys', New Zealand Treasury Working Paper, 13/14</ref>. A number of key changes have happened since this 1950s boom and era of prosperity in New Zealand and it is key to remember; “That individuals can get wealthy off housing, but the country cannot.”<ref name="Bassett & Malpass"/>
Current State of Affordability
Housing Affordability continues to be a contentious issue in New Zealand as fluctuations are seen in housing availability and prices. As recently as the 25th of September the House of Representatives discussed the current state of affordability. When Bill English was asked what he thought of the 80% of first home buyers who cannot afford the 20% deposit because of LVR (loan to valuation ratios) lending limits he stated the following:
- "First, it is easy to understand the frustration of first-home buyers. It has always been difficult to get into a first home. We would say to those first-home buyers that we will do everything we can to give them a fair shot at the dream of home ownership."- Hon Bill English.
An essential indicator of current New Zealand affordability is its comparison to the international market. House prices at three times the median income is the international standard for affordability. All major New Zealand markets were rather seriously or severely unaffordable in the 2013 Demographia International Housing Affordability Survey. This highlights a nationwide issue. As discussed in subsequent sections the current housing market makes it incredibly difficult for those looking to buy their first house. House prices have been recorded at significant highs and for many buying a house is not an option in the present conditions.
- A quarter of all houses on the market in the last month sold for $600,00+ and 5.6% for over 1 million <ref name="Bassett & Malpass">Bassett, M. and Malpass, L. (2013) Priced Out: How New Zealand Lost its Housing Affordability, Wellington: New Zealand Initiative.</ref>
- Nationally it now costs 56% of a median single income to service 80% of a mortgage on a medium priced house <ref name="Harris">Harris, C. (2013) Housing Affordability Worst in Three Years, http://www.stuff.co.nz/dominion-post/business/residential-property/8832771/Housing-affordability-worst-in-three-years (accessed 30 September 2013)</ref>
- The cost of buying a house without taking out a mortgage is more than five times the median income<ref name='Meadows'>Meadows, L. (2012) How perverse is the New Zealand Housing Market?, http://dunedinstadium.wordpress.com/a-study-of-site/ (accessed 30 September 2013)</ref>
- Essentially a single median income for a first-home buyer is not high enough to buy a lower-quartile priced house, even with a deposit around 10% of the house’s value. A couple/family with more than one income may find the lower-quartile house price affordable yet they will still be looking at houses in the lowest quartile. <ref name= "Roost Mortgages"/>
- In 2012 there was $2 billion spent on housing supplements to provide roofs for many people but did not add to overall housing stock <ref name="Bassett & Malpass"/>
- Government has longer-term responses to housing affordability underway, including reforms to the Resource Management Act and infrastructure funding. However, the land supply responses will not be implemented for several years at the earliest and the effect on house prices will take even longer to be felt <ref name="Nick Smith">Smith, N.(2013) Addressing Housing Supply and Affordability through Housing Accords and Special Housing Areas, Wellington: Office of the Minister of Housing</ref>
- Recent investigations into housing affordability show that following the housing boom of the 2000s national measures of house price to disposable income ratios remain elevated.<ref name= "Productivity Commission">New Zealand Productivity Commission (2012) Housing Affordability Inquiry: Summary Version of Report, Wellington: New Zealand Productivity Commission.</ref>
Affordability for First Home Buyers
Most first home buyers are in the 25- 29 age bracket which most often means they do not have enough savings to buy their own property. Generally a first house is made affordable from bank loans. Banks have considerable money invested in the housing market as people are set on owning their own houses <ref name="Bassett & Malpass"/>. As house prices continue to rise so do the size of loans required. Therefore New Zealand is facing an increasing problem where high house prices and high mortgages contribute to increasing levels of private debt. <ref name="Lyons">Lyons, P. Housing Inflation Distorts the Economy, http://www.odt.co.nz/opinion/opinion/205015/housing-inflation-distorts-economy. (accessed 28 September 2013)</ref> Bank loans directly influence the number of first home buyers who are able to enter the property market. About a third of mortgages with deposits of less than 20% are to first home buyers <ref name="The Social Report"/>. This demonstrates the heavy reliance buyers have on the current bank loan system available to them. The table to the right demonstrates the significant chane in house prices in the last year. As a nation average 6.42% may seem minor, yet to a house buyer in Nelson a year may make the difference between affordable and unfeasible.
Availability of Housing
There is a shortfall of houses in New Zealand for a number of reasons. In some regions this is due to anti development attitudes, tighter building regulations and artificial restrictions on land supply. Government policy to increase affordability has mostly included increasing the state home stock and slackening regulations on building on a national scale. A productivity report produced in October 2012 found that four key areas are causing the housing affordability problem:
- Land supply restrictions
- Lack of funding for infrastructure development
- Lack of productivity in the construction sector
- Costs and delays in the regulatory process <ref name="Nick Smith"/>
Current policy creates a situation where those who own property are often opposed to the interests of non-owners who are trying to purchase. This is created when home owners want to sell their properties for more than they bought for, pricing first home buyers out of the market.
Recently this has been addressed in changes to the Resource Management Act. Submissions have been put forward to allow more types of development passing without notification and limitations on what affected parties can object to <ref name="Morris"> Morris, C. (2013) DCC Seeks Changes to Bill, http://www.odt.co.nz/news/dunedin/260648/dcc-seeks-changes-housing-bill (accessed 27 September 2013)</ref>. The measures announced in October 2012 include increasing land supply for new housing, both within and outside the city limits; a six month time limit on council processing of medium sized consents as part of a broader suite of measures to reduce delays the costs of Resource Management Act processes associated with housing and improving the provision of infrastructure to support new housing.<ref name="Rogers"> Rogers, C. (2012) Governments Plans to Make Housing Affordable, http://www.stuff.co.nz/national/politics/7878018/Government-plans-to-make-housing-affordable (accessed 29 September 2013) </ref>.
The Influence of RBNZ Restrictions
Changes to loan limits has caused uncertainty in the market for first home buyers. The worst home loan affordability in three years is exacerbating the problem of supply as first home buyers scramble for low deposit loans ahead of the expected clampdown by the Reserve Bank <ref name="Bassett & Malpass"/>. Mortgage brokers report banks are toughening their lending criteria and reapplying penalty interest rates for low deposit borrowers ahead of an announcement expected within weeks of a 'speed limit' on the growth of low deposit lending. <ref name="Roost Mortgages"/>. Application waiting times have increased in recent weeks as banks look to ration their low deposit lending and slow lending growth <ref name=”Stock”> Stock, R. (2013) ‘’ House sales slip, prices climb’’, http://m.stuff.co.nz/business/industries/9170545/House-sales-slip-prices-climb (accessed 28 September 2013)</ref>. The scramble for loans and the uncertainty over the Reserve Bank's speed limit has darkened the outlook for borrowers. Simultaneously the Roost Home Loan Affordability Reports showed a further slight worsening in June, thanks to another rise in house prices. The current situation for first home buying in New Zealand is tough as market prices are high and the impacts of new policy have yet to be seen.
Through a number of new initiatives, the government is seeking to reduce the costs and complexities currently restricting residential development in New Zealand. They are confident that in time, housing affordability will improve allowing more kiwis to enter the market and own their own homes <ref name="NZ National">NZ National Party (2013) online:Improving Housing Affordability. http://www.national.org.nz/affordablehousing.aspx (accessed 20 September 2013)</ref> .
Easing the burden of mortgage repayments and also help those saving for a house deposit by:
- lowering personal income taxes
- taking pressure off interest rates by growing the productivity of the New Zealand economy and eliminating low quality government spending <ref name="NZ National"/>
Housing Accords and Special Housing Areas Act 2013
- The Housing Accords and Special Housing Areas Act (the Act), entered into force on 16 September 2013.
- Section 4 provides the purpose of the Act: ‘The purpose of this Act is to enhance housing affordability by facilitating an increase in land and housing supply in certain regions or districts... identified as having housing supply and affordability issues. <ref name="Act">Housing Accords and Special Housing Areas Act (2013)</ref>
- The Act enables either national or local government to initiate a housing accord, which will encourage both bodies to work collaboratively to address issues of housing affordability. <ref name="Nick Smith"/>
- ‘Accord Territorial Authorities’ (s10(5)) will be able to recommend special housing areas within their territorial boundaries that will be subject to less stringent resource consent processes.<ref name="Act"/>
- These more permissive resource consenting powers will only apply to ‘qualifying developments’ that meet certain criteria. The meaning of ‘qualifying development’ is established under s14 of the Act that lists these criteria as a development:
- That will be predominantly residential; and
- In which the dwellings and other buildings will not be higher than 6 storeys or a maximum calculated height of 27 metres; and
- Will contain the number of prescribed minimum number of dwellings, or more; and
- Will not contain less than the prescribed percentage (if any) of affordable dwellings. <ref name="Act"/>
- These criteria are to ensure the area is primarily residential as opposed to commercial, or for hospitality as the aim of the Act is to increase the land available for residential developments.
- In addition to the Act, there will be more focus on urban intensification in areas where densification of residential accommodation may be viable.<ref name="NZ National"/>
Changes to KiwiSaver and the Welcome Home Loan Scheme
KiwiSaver is a voluntary, work-based savings initiative primarily aimed at assisting long-term saving for retirement. <ref name="House">Housing New Zealand (2013) KiwiSaver: Buying your first home with KiwiSaver. http://www.hnzc.co.nz/about-us/our-publications/Brochures/buying-your-first-home-with-kiwisaver/buying-your-first-home-with-kiwisaver.pdf (accessed 3 October 2013).</ref> However, in relation to housing affordability, it is the secondary benefit of first home purchasing assistance that is important.
KiwiSaver has two features that assist first home buyers:
- The Kiwisaver first-home deposit subsidy - After three years of regularly contributing to KiwiSaver, you may be entitled to $1,000 subsidy for each year of contribution, up to a maximum of 5 years ($5,000) <ref name="House"/>
- The KiwiSaver first home savings withdrawal - After three years of regularly contributing to KiwiSaver, you may be able to withdraw all, or part, of your savings to put towards the purchase of your first home. <ref name="House"/>
The Welcome Home loan Scheme
The Welcome Home Loan is designed for first home buyers who can afford regular mortgage repayments, but are unable to provide a large deposit. <ref name="Welcome">Housing New Zealand (online) 2013: Welcome Home Loans. http://www.hnzc.co.nz/.../home-loans/welcome-home-loans (accessed 3 October 2013).</ref>
Housing New Zealand in association with banks and lenders have developed a scheme that means qualifying couples can provide a 10% deposit, instead of the 20% deposit required now due to the RBNZ restrictions. <ref name="Welcome"/> Each New Zealand region has a house price cap, which determines the maximum loan amount for people in that region. <ref name="Welcome"/>
The Government has adjusted KiwiSaver and the Welcome Home Loan scheme with the aim of helping young people into buying their first home. The main changes that took effect from October 1st 2013 include:
- increase of the maximum joint earnings limit of a couple to qualify for extra deposit assistance from $100,000 to $120,000
- expansion of the Welcome Home Loan scheme to increase the number of loans made, from about 850 to 2500 loans per year
- in Auckland the house price cap will rise from $400,000 to $485,000, with other unaffordable regions expected to follow. <ref name="Three">3 News (online) 2013: KiwiSaver tweaked for home buyers. http://www.3news.co.nz/KiwiSaver-tweaked-for-home-buyers/tabid/1607/articleID/308482/Default.aspx (accessed 3 October 2013).</ref>
Prime Minister John Key has discussed this scheme recently, promoting it as the first move in years that will make a difference to first home buyers. However, the Government has been criticised for glorifying what are in reality very minor changes. According to the Labour Party's housing spokesman Phil Twyford, "John Key is out of touch if he thinks that $5000 extra through changes to Kiwisaver will make a difference to first home buyers. Adding 10 per cent to the deposit required for a mortgage adds up to $60,000 for an Auckland house. He's really out of touch if he thinks that's any kind of solution."<ref name="RBNZ"/> This suggests that while the changes to KiwiSaver and the Welcome Home Loan scheme are beneficial, they will do little to address the the real issues related to housing affordability.
Reducing delays and costs of the Resource Management Act (RMA)
- The RMA has been associated with unnecessary time delays, costs and inconsistencies.<ref name="NZ National"/>
- Proposed reform of the legislation will impose time limits on medium sized consents and possibly introduce a presumption in favour of residential development, unless specifically excluded on the regional or district plan.<ref name="NZ National"/>
Improving the provision of infrastructure to support new housing
- To create subdivisions, infrastructural services must be readily available. The Government plans to focus more on funding such infrastructural development.<ref name="NZ National"/>
Improving productivity in the construction sector
- The Ministry for Business, Innovation and Employment will investigate all aspects of the construction sector, seeking to identify structural, industrial, skill or market issues that may need development to improve housing affordability.<ref name="NZ National"/>
- The Building Act 2004 will be amended to reduce the excessive costs imposed on Councils and the building industry.<ref name="NZ National"/>
- There will be an increase of trades-training opportunities so there are more skilled people to build and develop new houses.<ref name="Govt">NZ Parliament (2013) online: Government Response to Report of Commerce Committee On Housing Affordability in New Zealand. http://www.parliament.nz/resource/0000118722 (accessed 18 September 2013).</ref>
Provision of advice to first home buyers
- The Government plans to establish an Options and Advice Service provided by Housing New Zealand Corporation. This service would assist households to match their housing needs with appropriate housing solutions, both homeownership and rental.<ref name="Govt"/>
Measures already in place
- State housing: upgrades to ensure warmer and drier houses; 600 more state houses built; introduction of reviewable tenancies and support to find alternative housing for those able to move out of state housing <ref name="NZ National"/>
- Implementation of the ‘Warm Up New Zealand: Heat Smart’ scheme which involves insulation and installation of heating devices in private homes<ref name="NZ National"/>
- Formed the ‘Social Housing Unit’, which aims to increase the supply of social and affordable housing for New Zealanders by allocating funding and facilitating partnerships with not-for-profit, iwi and private sector providers.<ref name="NZ National"/>
Reserve Bank of New Zealand (RBNZ)
- The RBNZ is New Zealand’s central bank as it ‘manages monetary policy to maintain price stability, promotes the maintenance of a sound an efficient financial system, and supplies New Zealand banknotes and coins’.<ref name="Reserve">The Reserve Bank of New Zealand (online) 2013: Loan-to-value ratio restrictions. http://www.rbnz.govt.nz/financial_stability/macro-prudential_policy/5393159.html (accessed 1 October 2013)</ref>
- The RBNZ is concerned with the high amount of indebtedness among New Zealand home owners. It believes the housing market is presenting an ever-growing risk to the countries financial stability. Approximately half of bank lending in New Zealand is tied up with home loans, meaning that any instability in the housing market has the potential to upset the stability of the whole economy.<ref name="Reserve"/>
- Consequently, the RBNZ has imposed restrictions on how much high loan-to-value ratio, mortgage lending the banks do.
- A loan-to-value ratio (LVR) measure the amount a bank lends against a particular residential property, compared to the value of that property.
- For new residential mortgages, banks are required to restrict lending at LVRs of over 80% (deposit of less than 20%) to no more than 10% of all their residential loans.<ref name="Reserve"/>
- These restrictions came into force on October 1st 2013 and will not apply retrospectively to existing loans.
- This will ultimately hit first home buyers the hardest, as banks will favour second and third home buyers who have already built up equity.<ref name="RBNZ">Meadows, R. (2013): RBNZ cracks down on mortgage lending http://www.stuff.co.nz/business/industries/9064697/RBNZ-cracks-down-on-mortgage-lending (accessed 18 September 2013).</ref>
- Nevertheless, the RBNZ has refused to make an exception for first-home buyers, despite pressure from the Government.<ref name="RBNZ"/>
- There is much scepticism about the effectiveness of these restrictions and claims that the wrong group of society will be negatively affected. Alternatively, many economists argue that a capital gains tax should be imposed, as it would remove tax-free gains for investors, pushing them out of the market and lowering house prices.<ref name="RBNZ"/>
The Big Banks
Promising to ‘toe the line’. However skeptics think it won’t be hard for them to get around limitations and people are being encouraged to talk to their banks about their individual needs.<ref name="RBNZ"/>
Kiwibank: Prioritising First Home Buyers
Kiwibank chief executive Paul Brock said the bank would give priority to first-home buyers over those buying investment properties, in terms of lending on deposits of less than 20 per cent. They believe first home buyers should not be disadvantaged just because they have not had the opportunity to build up equity.<ref name="Kiwibank">Kiwibank (online) 2013: First home buyers. http://www.kiwibank.co.nz/personal-banking/home-loans/first-home-buyers/ (accessed 18 October 2013).</ref>
What is Needed to Aid First Home Buyers
Increased Viable Government Intervention
Government needs to proactively engage with local councils to address housing supply and affordability issues. This should be done by identifying regions or districts with significant housing supply and affordability issues and creating specialised plans for these areas. These plans should be implemented by local councils but supported by the Government <ref name="Nick Smith"/>
The Government also needs to lift zoning restrictions on residential building to help open up the housing market. However, an increase in construction of residential housing will flood banks again with housing loans, creating a housing 'bubble' which is dangerous for a growing economy. In response to this issue both the International Monetry Fund (IMF) and Organisation for Economic Co-operation and Development (OECD) have said that a capital gains tax would be appropriate for the current housing affordability dilemma of New Zealand <ref name="Labour"> Labour (online) 2013): Capital gains tax key part of house affordability. https://www.labour.org.nz/ (accessed 2 October 2013).</ref>. The imposition of a capital gains tax would be beneficial as it would remove tax-free gains for speculators <ref name="Chapman">Chapman-Smith, B. (2013) 'Capital gains tax no good unless comprehensive', The New Zealand Herald. http://www.nzherald.co.nz/business/news/article.cfm (accessed 1 October 2013)</ref>. Investors who buy and sell property as a commercial enterprise, would be driven out of the market and house prices would be lowered accordingly. <ref name="Labour"/>
The implementation of a capital gains tax has become a very political issue, with Labour criticising National's unwillingness to impose the tax was not in the best interests for the country as a whole. "They're allied with the interests of the minority who would pay most of the capital gains tax and whose financial interests it's in to oppose a capital gains tax. They've got themselves in a corner." <ref name="Chapman"/> Even if a capital gains case was introduced, there would be great political debate over application of the tax in relation to the family home, tax rates and basis (accrual or realisation). <ref name="NZNow">New Zealand Now (online) 2013: Taxes: A system designed for simplicity and fairness. http://www.newzealandnow.govt.nz/.../rules-law/taxes. (accessed 2 October 2013).</ref> <ref name="Chapman"/>
Thomas Pippos, chief executive of Deloitte New Zealand, supports the idea of a capital gains tax and suggests opposition to the idea among the general public is decreasing. <ref name="Chapman"/> In fact, he believes there is a general acceptance that a capital gains tax is "an inevitable part of our future tax landscape" <ref name="Chapman"/>
It is clear the a capital gains tax would work against market speculators, in favour of first home buyers. However, the likelihood of its imposition will highly depend on which political party is elected in the 2014 elections.
Recognition of What is Affordable vs. Public Expectations
Subsequent market changes throughout history have meant that the New Zealand dream of everyone owning their own home, with a garden and all the trimmings, is over. New Zealanders' obsession with home ownership is significant as it is generally a peoples main source of equity. The volatile nature of the marketplace and staggering housing prices mean that New Zealander’s have to ‘get real’ when assessing their options (especially first home buyers).
James Collings, an accounting student at Massey University, explains that although young people should be able to aspire to own their own home without the burden of a large mortgage, they must also be realistic as to what they can afford. <ref name="Mas">Masters, B. (2013) 'Housing in New Zealand: Student Affordability", Massive 5(2)</ref> “I think people need to be realistic about where they can afford to live. If you can’t afford to live in a home, you have to accept you have to live in a not-as-nice neighborhood, or not-as-nice home.” <ref name="Mas"/>
Those in the house buying market need to pay close attention to which set of council candidates, in triennial local body elections, has policies favouring the opening up of new supplies of land by removing the current regulations and excessive levies applied to new residential developments. <ref name="City">City Vision (online) 2013: A win for affordable housing. http://cityvision.org.nz/.../a-win-for-affordable-housing/ (accessed 2 October 2013).</ref> It is also important at a national government level for people to vote for the party or candidates who are determined to implement policies alleviating the issue of housing affordability in New Zealand. <ref name="City"/>
Urban intensification is not part of the 'clean and green' kiwi image, yet it may be one of the only practical solutions to the issue of housing affordability. Building up rather than out, is essential for increasing opportunity in the housing market.
Developments should face standards of how many people they must contain in order to be viable. Qualifying developments have already been identified by Housing Minister Nick Smith who states they should be:
- predominantly residential
- low rise (but up to five storeys)
- with capacity for more than 30 dwellings to be built <ref name="Nick Smith"/>
There are a number of urban intensification strategies that can be implemented in regional towns and cities, and many ways of achieving them. First however, the local community, Council and other stakeholders must support the idea.<ref name="Scrafton"/> There must be collaboration of disciplines, stakeholders and work-streams for successful implementation of such strategies.<ref name="Scrafton">Scrafton, C. and Bredemeijer, W. (2013) 'Urban Intensification in a Regional New Zealand City', Planning Report. http://www.planning.org.nz/Folder... (accessed 2 October 2013).</ref> Council planners have a major role in easing the current housing affordability issues, yet they often face criticism for the over-regulation and rigidity of district plans, driving house prices up.<ref name="Scrafton"/>
The New Zealand Productivity Commission (2012) stated, "The prevailing approach to urban planning in New Zealand reduces housing affordability in our faster growing cities. The widespread planning preference for increasing residential density, while at the same time imposing restrictions such as minimum lost size and height restrictions, and limiting greenfield development, places upward pressure on house prices across the board... differences in supply responsiveness at the territorial authority level may, in part, reflect the efficiency with which local councils implement and enforce regulations governing the land development and building sectors.<ref name= "Productivity Commission"/>
The primary risk associated with urban intensification is that potential house buyers, developers and banks/investors, will not see higher density housing as a viable choice, product or investment.<ref name="Scrafton"/> However, if planners are able to implement strategies that make intensified urban development more appealing to these stakeholders, the risks would decrease accordingly. For example, urban gardens, modern buildings with family friendly features should be a focus of urban development. Additionally, more public parks should be made available enabling people to enjoy a more open, green environment if they wish. New Zealand planners should be considering urban intensification designs being implemented around the world. The Provincial Planning Policy Branch of the Ministry of Municipal Affairs and Housing provides one example of innovative planning that is applicable to New Zealand cities.<ref name="Affairs"/> Their website lists a number of planning and design features that support intensification, including:
- street-level awnings for shade
- wide sidewalks and street furniture for pedestrian comfort
- mobility friendly curb cuts
- light coloured surfaces for pavement, roads and buildings
- energy efficient lighting to increase safety
- human-scale designs that create active streets and promote physical activity
- adaptive reuse of heritage buildings
- pedestrian and bicycle pathways. <ref name="Affairs">Ministry of Municipal Affairs and Housing, Provincial Planning Policy Branch (2009) online): Planning for Intensification. http://www.mah.gov.on.ca/AssetFactory.aspx?did=7238 (accessed 3 October 2013).</ref>
Including such features into urban environments would increase the value associated with more compact urban housing. Consequently, housing would become more affordable, as more desirable housing areas are made available, opening up the market.
Solving the issue of housing affordability in New Zealand, is an increasingly difficult challenge facing policy makers today.
While the imposition of a number of initiatives is likely to have some effect, many believe the Governments efforts are too little, too late. The changes to KiwiSaver are minimal, and the success of the Housing Accords and Special Housing Areas Act 2013 is yet to be decided. While the RBNZ restrictions are aimed at improving housing affordability in the long term, they are to the detriment of first home buyers in the short term.
A capital gains tax would target speculators, opening up the housing market for first home buyers.<ref name="Labour"/> However, it is unlikely that this tax would be implemented under a National Government. Therefore, urban intensification through adaption of local plans must be the current focus, as it will open up more space for development.<ref name= "Productivity Commission"/> To encourage support for this intensified residential housing, other measures enhancing residential appeal, such as those under implementation in Ontario, will also need to be a focus for New Zealand planners.<ref name="Affairs"/>
Housing affordability is a complex issue, and the continued price rise is attributable to a number of factors and interrelationships. Consequently, efforts must be made at a national, regional and local level to ensure the issue is comprehensively addressed. If the current housing boom is not controlled, it is likely to peak then plummet resulting in the loss of value for all current homeowners and the ultimate diminution of the New Zealand economy.