Gordon Campbell on the Reserve Bank and Auckland Housing
Gordon Campbell on the Reserve Bank’s call to arms about the Auckland housing crisis
The ‘crisis – what crisis ?’ response by the government to the Auckland housing price bubble is no longer acceptable. So says Reserve Bank governor Grant Spencer – who used unusually frank language in his speech and subsequent interviews yesterday to call for a capital gains tax, and to generally chastise central and local government for their inaction on a threat to the country’s economic health and financial stability.
That threat has been real for some time. The housing price bubble has already created a currency bubble – whereby the NZ dollar been kept aloft by the Reserve Bank’s interest rate policy, which has tried to dampen the speculation in housing by keeping interest rates relatively high, and – as a side effect - drawn in currency speculators who have pushed the currency to levels that have been hurting our exporters. Undaunted, the government keeps calling this situation a success story.
So far the government response – such as it is - has been to concentrate most of its actions and all of its rhetoric on the supply side of the equation, as Housing Minister Nick Smith all but conceded in an extraordinary interview with Kim Hill on RNZ this morning.
The demand side? Not his department, Smith claimed. No wonder Grant Spencer has finally lost patience.
By abdicating the demand side of the price equation – and living in denial about the existence of a housing price crisis in Auckland – the Key government is not only shirking its job. It has left the field wide open to its political opponents, who are being invited to own the hard and unpopular decisions required to make a difference. These demand side solutions include (a) a more robust capital gains tax to tackle the long term problem of property speculation and (b) the levying of a higher lending rate on speculators ( aka a loan to value ratio or LVR) when they try to borrow to finance their speculation on multiple houses.
The response by Labour leader Andrew Little has been fascinating. As he kept saying yesterday, Labour took a capital gains tax into the past two elections and the electorate didn’t buy it. Yesterday ( on Checkpoint) Little therefore indicated that Labour would not seek to impose a capital gains tax on all but the self-occupied family home. Those Mum and Dad investors who speculated in one or two properties to finance their retirement, Little indicated, were (a) not the problem and therefore (b) would presumably not be targeted by any future Labour policy package.
In vain, RNZ’s Mary Wilson sought to point out to Little that Grant Spencer had in fact, indicated it was indeed those kind of “retirement savings” investors who were driving up housing prices, and not so much the people buying 5, 10 or 50 houses, who are being caught by the existing tax rules.
For now, Labour has picked up the RB’s call for a higher “LVR” lending regime for major property speculators, and one that is restricted to the Auckland property market. To repeat : Labour currently seems to be choosing to sidestep calling for the kind of capital gains tax that might dampen down demand and make a difference – if one is ever to be enacted in New Zealand, it will be only after a Labour government gets elected. If that’s the short term Labour strategy, it will be exposed during the next election campaign, and will succeed only in making Little look shifty. Oh, and it will also put Labour in conflict with the Greens and deny the centre-left a common policy front on this crucial issue. But that’s a problem for another day.
For now, everyone concedes that a more robust capital gains tax is not a silver bullet, and will have only a gradual, long term effect on a situation that needs more urgent solutions. As Nick Smith and Andrew Little both correctly point out, Sydney and London also have housing price bubbles despite having a capital gains tax in place. Even so, that isn’t a reason for New Zealand to remain one of the very few developed countries that doesn’t regard a robust capital gains tax as being an essential part of the toolkit to try to combat house price inflation.
Over on the supply side, one can discount the usual idiotic suggestions by Act Party leader David Seymour – who is calling for wholesale de-regulation and ribbon development out on the city fringes, as if he’d never heard of the social problems (and costs, eg for urban transport ) associated with urban sprawl. Mindful of such problems, Spencer pointedly called for more high density housing and for the kind of bylaw changes ie, to height restrictions - that would make the building of bigger, taller apartment blocks feasible.
Scarcity is going to prolong the life of this price bubble, for the foreseeable – which is why the Reserve Bank has pushed the alarm button and called on the government to respond in more than a token fashion. More houses need to be built, by a construction industry that’s already stretched in Christchurch and in Auckland – to the point where construction capacity too, is now feeding into house price inflation. So far, the government isn’t at home and isn’t taking messages about a problem that’s making our biggest city unaffordable to live in, for all but a few. It has to engage.
The imminent collapse of Ramadi, ( the capital of Anbar Province) into the hands of the Islamic State underlines just how foolhardy New Zealand’s imminent deployment really is. For the past couple of months, the US coalition has been fixated on the success in liberating Tikrit, while the threat to Ramadi has been steadily building. If and when Ramadi finally falls this week, this would leave the huge US base at Al Asad virtually cut off and surrounded by Islamic State forces. Presumably, this is why the New Zealanders are being located elsewhere at Camp Taji, even though most of the Australian troops in Iraq are still located at Al Asad.
Talking of our Iraq deployment, it is utterly absurd that Prime Minister is refusing to reveal even when the NZ troops will depart.
This blanket of secrecy about both the deployment and the tasks in which our troops will be engaged has no place in a democracy. We have a basic right to know what tasks these troops are doing in our name. Key is trying to avoid political scrutiny of his decisions over Iraq, and is invoking a bogus need for secrecy about all aspects of the deployment in order to do so. By default, that is leaving New Zealanders embarrassingly dependent on the information being freely released by Australian PM Tony Abbott and the Aussie media.
On March 31 the ABC reported New Zealand had begun pre-deployment training in Australia. Defence Minister Gerry Brownlee [then] confirmed that 50 had returned from Australia and been replaced with another 60.
Unlike Key, Abbott seems to accept that (a) he lives in a democracy, and (b) that it is possible to talk frankly about the deployment without endangering the troops.
Songs About Housing
Talking Heads were the band who really made the connection between housing and its role as a cocoon for middle class anxiety… Here are a couple of the great ones, like the medicated angst of “ Don’t Worry About The Government” and the funkier “ Houses in Motion…” All together now :
there, it's over there
My building has every convenience
It's gonna make life easy for me
It's gonna be easy to get things done
I will relax alone with my loved ones
Loved ones, loved ones visit the
Take the highway, park and come up and see me
I'll be working, working but if you come visit
I'll put down what I'm doing, my friends are important
Don't you worry 'bout me
I wouldn't worry about me….