Former Reserve Bank Governor Don Brash says the Government won't be looking to bring down house prices too quickly because it would see them voted out of office.
His comments come as the bank urges the Government to consider a capital gains tax (CGT) on property to ease housing pressures, particularly in Auckland where the average sale price is now above $750,000 – almost nine times the average annual household income.
A ratio of around three or lower is what has historically been considered affordable.
But both the Government and the Labour Party say a CGT on its own won't work. Finance Minister Bill English says there are existing laws that require property speculators to pay tax on their capital gains that need to be enforced.
"If investors are buying up houses with a view to flicking them on, then they have to pay tax on that capital gain under the existing law. That's why it's important that IRD enforces that law comprehensively."
Dr Brash says the real fix will be supply – and it's largely up to Auckland Council to fix that.
"Auckland Council and their planning processes have made land extremely expensive," he said on TV3's Paul Henry programme this morning.
"[Reserve Bank Deputy Governor Grant Spencer] makes the point that the price of the land is more than 60 percent of the price of the combined land-house package – and that's nuts."
Dr Brash says "bubble" is an emotive term, but house prices in Auckland have become out of proportion with incomes in recent years.
"Once this momentum starts, people assume that it will always go on. House prices haven't fallen for 45 years in New Zealand, people assume they never will fall and therefore this is a riskless, highly profitable investment."
If the Auckland market is a bubble and it bursts, it won't only be investors that get burned.
"The one sure thing is if house prices do return to their normal relationship with incomes, the Government's gone because a whole lot of property owners will be badly hurt by that process. But who knows? We don't know how it will end, but we do know that we can't keep on going as we are now."
Annual house price inflation reached 17 percent last month, and the Reserve Bank says it has a shortfall of around 20,000 houses.
3 News
source: newshub archive
