First Home Buyers Need to Have Patience: Bill English
First Home Buyers Need to Have Patience: Bill English
Finance Minister Bill English has said he’d “counsel patience” for those looking to buy their first home in the Auckland housing market.
Speaking to Corin Dann on TV One’s Q+A programme, Mr English said “if people feel like they can’t really make it now and feel secure about being able to service that debt, then if they’re patient, they will see a housing cycle. There’s a belief in Auckland house prices will go up fast forever. That is not the case.”
Mr English said prices growing 85 per cent in Auckland over the year was a “problem that’s been 20 years in the making” – and the Council was mainly to blame.
Auckland spent a lot of time over the last two decades with planning rules designed to prevent Auckland growing out, and they never really succeeded in persuading Aucklanders that it should grow up. And so now we’re dealing with the consequences of that planning as well as a sharp downturn in 2008 with the GFC, and that took all the confidence out of the building industry, so not much got built for a while, and now there’s a very substantial catch-up going on now.”
He said the Government would be watching for what the Council adopts from the final recommendations to the Unitary Plan this Friday and although it hadn’t considered the idea of commissioners stepping in, it would consider “whether there’s some kind of persuasive or legislative process to ensure that if the plan is sound, that the council adopts it.”
Please find attached the full transcript of the interview and here’s the link:
Interviewed by CORIN DANN
JESSICA It’s a pivotal week for the government’s plan to improve housing affordability in Auckland. On Friday, the Auckland Unitary Plan Independent Hearings Panel will report back to the council with its final recommendations on how the city should build for the future. On Friday afternoon, political editor Corin Dann sat down with Finance Minister Bill English. He began by asking how disappointed he was that Auckland house prices have risen by 85% over the last four years.
BILL Well, that’s a problem that’s been 20 years in the making. Auckland spent a lot of time over the last two decades with planning rules designed to prevent Auckland growing out, and they never really succeeded in persuading Aucklanders that it should grow up. And so now we’re dealing with the consequences of that planning as well as a sharp downturn in 2008 with the GFC, and that took all the confidence out of the building industry, so not much got built for a while, and now there’s a very substantial catch-up going on now. So those price increases are pushing the market to produce more and more houses.
CORIN There is a lot of work going on in housing. You talk about 40 houses, or consents, a day, depending on how you want to put it. When will we see the peak build? When will we see that number of houses start to match the supply? When are you forecasting that you’re going to see prices stabilise? You must have done some work on that.
BILL No, we don’t have a particular date. And in any case, it’s not in our control, because that’s controlled by the Auckland City Council. They make all the decisions, and they’re about to make a big one, which is the Auckland Unitary Plan.
CORIN And what do you expect them to do? What is your bottom line on that unitary plan? What do you need to see?
BILL Well, it has to enable enough supply that people can see that supply is going to meet the demand. The demand is strong; the supply is growing fast at the moment. That plan needs to make sure it can grow faster for longer.
CORIN And if it doesn’t?
BILL Well, the government will have to consider its options.
CORIN Can you just tell us what those options are?
BILL It may be that the council is presented with a plan by the independent panel. If they turn it down, then we would certainly be having discussions with them about the need to take up the plan, not turn it down.
CORIN So that’s where you’d get to commissioners actually stepping in?
BILL No. No. Well, we haven’t considered commissioners at all, no. We have considered – or would consider – whether there’s some kind of persuasive or legislative process to ensure that if the plan is sound, that the council adopts it.
CORIN What is your message to a first-home buyer in Auckland right now? Looking at the market— You’re obviously hopeful that you can stabilise things in a year’s time or whenever it is. You’ve got the Reserve Bank lining up to whack first-home buyers with debt-to-income ratios. You’ve got a huge effort going in to try and stabilise prices. What would you tell a first-home buyer that’s looking to take out a big mortgage in Auckland right now?
BILL I think just patience. There are some risks with taking out a mortgage that really stretches a two-income household right now.
CORIN So don’t buy? Is that what you’re saying?
BILL Well, it’s up to them, but I’d just counsel patience, because you can see the supply picking up fast. The supply is coming. Even if the demand stays pretty strong, it’s likely that prices are going to flatten out, and some parts of the market might drop back a bit. This has happened in Christchurch.
CORIN Why should they be patient, though? Because if they wait another year or something, then that’s another 100,000 on the average house price in Auckland.
BILL Well, as I said, they have to make the decision. They’ve got the HomeStart package sitting there. We’re adjusting the parameters for it. They’ve got rising incomes, which is giving them a bit of confidence. Interest rates are low.
CORIN But, hang on, so on the one hand, you’re saying be patient, but on the other hand, you are talking about lifting the caps on the KiwiSaver lending, you know, up to 700,000 possibly, presumably. Does that make sense? Why would you be encouraging first-home buyers to borrow up to $500,000, $600,000 in this market?
BILL Well, look, again, it’s up to them to make the decisions. All I’m saying is that if people feel like they can’t really make it now and feel secure about being able to service that debt, then if they’re patient, they will see a housing cycle. There’s a belief in Auckland house prices will go up fast forever. That is not the case.
CORIN Because the reality is it’s 40% overvalued, isn’t it? That’s what Arthur Grimes, former Reserve Bank chairman— Don Brash is saying that, you know, you need to crash it by 40%. So they’re saying it’s 40% overvalued. That’s an enormous risk, isn’t it, for anyone to get into?
BILL Well, you’d need to talk to the people taking the risk. You know, it’s up to them to make the decisions about when they buy and how much debt they take on.
CORIN But it’s having a major effect on the economy, house prices, isn’t it? Because the Reserve Bank is in a situation now where it’s very nervous about cutting interest rates, when your mandate to that bank is that, arguably, they should be cutting interest rates.
BILL That’s up to the bank. We’ve got a 3% economy. It’s not necessarily one where you would automatically cut interest rates. But it’s up to the bank to sort that out.
CORIN Well, your mandate says they’ve got to hit 2% over the medium term, and they haven’t been near 1% in about six quarters or something.
BILL Well, that’s another whole argument. You’ve got to see their decisions there in the context of world interest rates, which now just keep on dropping. And we’ve now got one of the higher interest rates in the developed world.
CORIN And a very high currency, which is hurting exporters and hurting the real growth, you could argue – the export-driven growth – that we need longer term to make this country sustainable.
BILL Well, look, these are the dilemmas that the bank has to deal with. That’s why they’re an independent institution who make those decisions.
CORIN Yeah, it was interesting talking to Stephen Jennings – you know, New Zealand businessman who’s done very well overseas, and he’s come back and given a speech here. He raises the point that the growth in New Zealand is being driven by immigration and by New Zealanders working longer – so they’re working hard but not smarter – that we don’t get— or we haven’t got the productivity growth. And he’s pretty gloomy, thinks that we’re heading for an iceberg here.
BILL Well, I just don’t agree with the heading for an iceberg. Measured productivity around the world seems to be lower after the global financial crisis. We’ve got, I think, in New Zealand, though, a growing level of investment in technology and innovation; a lot more investment in our science; improving competition, for instance, in the government social housing market, which is one in every 16 houses in New Zealand. Quite a lot of things going on.
CORIN But we do have a productivity problem, don’t we? Even Treasury says that. And what I mean by productivity is we’re not able to sell things at a higher price overseas, you know, really get those exports going, are we?
BILL Whether it’s a problem or not is quite arguable. What we do have going on, though, is higher levels of business investment, more innovation, the growth of our IT sector now – 14%, I think. A number of our industries doing quite well, despite the fact that the dollar is higher than they expect it – a lot of our industries— in fact, most of our industries, except dairy. So there is improvement to be made in productivity. It’s very difficult to show direct impacts of investment decisions or policy decisions on productivity, but the outlook for the economy is pretty positive. I mean, look, I’d much rather be in a 3% economy where there’s a productivity in challenge than most developed economies, growing at 1% to 2%. They don’t even get to talk about a productivity; they’re just trying to get some growth at all.
CORIN Sure. And I guess the big criticism is that, yes, we are growing, possibly, some are saying, even closer to 4% this year, but that it’s debt-driven, that it’s not sustainable and that it’s setting New Zealand up for a nasty correction at some point.
BILL Well, again, I don’t agree with that. I mean, people have been saying that in different versions for the last seven or eight years. First it was Christchurch, then it was the dairy prices, now it’s the house prices. Well, it’s actually— building housing is real activity. There’s, you know, 40,000 more people doing it than there were a number of years ago. Now, it’s not going to run on forever, but there’s other drivers of growth to come. You’re going to see the export sector continuing to grow. So, you know, we’ve got a bit of confidence that, if the world— given the risks in the wider global economy, that the New Zealand economy is able to grow actually faster than most developed economies.
CORIN One of the other arguments he makes is around the capital-gains tax, and this is interesting, because it is coming from someone who’s a neo-liberal, effectively. He’s right out there on the right, in some ways. But he’s saying to your government this is an equity issue, the capital-gains tax. Don’t worry about whether it slows down the housing market or not, because the bright-line test you’ve got doesn’t seem to be doing that. It’s actually about taxing the income on capital gains in a fair way. Do you think he’s got a point there – that perhaps people are making huge amounts of money in the Auckland housing market? Is that fair for the rest of the country, that’s maybe battling away, are renters, working just as hard?
BILL The unfairness is in the driver of the capital gain, which is the planning rules. And poor planning is tough on low- and middle-income households. That’s who pays the price of poor planning.
CORIN Yeah, but you could’ve— 85% gains in house prices over the last four years in Auckland. If you’d have taxed that properly, you could’ve got a large amount of money, which you could then have distributed, presumably, to people who are struggling. I mean, you could’ve done that. That’s an equitable thing to do, isn’t it?
BILL Well, actually, the property tax situation has changed quite a bit in recent years. We abolished depreciation, which gives us about another $900 million a year. The combination of the bright-line test and IRD administering the current law with greater resources, particularly now they can track the tax numbers, means that people who are trading in property pay full income tax.
CORIN And do you know how much that’s netting the government?
BILL Well, they’ll be able to tell us— I can’t tell you the number off the top of my head. But the capital gain is based on planning rules that limit the supply of land, and they hand capital gain to existing owners of homes, and that encourages speculation. It’s really important that councils understand when they make those rules that restrict the growth of their towns and cities, they’re handing capital gains to people who live in existing homes and helping lock out first-home buyers and low- and middle-income households.