Housing: Government could be forced into 'knee-jerk' moves to rein in house prices

A leading economist fears the Government will be forced into making a "knee-jerk" move to rein in house prices soon, with prices "skyrocketing" out of reach. 

Values went up 2.6 percent in December, far outstripping inflation, capping off a year in which they defied all expectations - continuing to rise through the COVID-19 pandemic and recession. 

Analysts CoreLogic last week tipped they'll continue to rise this year, "without any major policy change regarding property in the works".

A number of high-profile economists told RNZ on Tuesday something had to be done urgently to prevent more Kiwis being forced out of the market, such as higher loan-to-value ratios to squeeze out investors and freeing up land. 

National housing spokesperson Nicola Willis even called for emergency measures like those put in place to help rebuild Christchurch, "specifically to increase urban land available for intensification and to release more land for subdivisions".

Infometrics senior economist Brad Olsen said there are few problems as big as the housing crisis facing the country. 

"It seems to be outside of COVID the only conversation that every household would have discussed over summer - seeing those house prices going up," he told Magic Talk on Wednesday.

"If you don't have a house, trying to figure out what strategy you're going to use to get on that housing ladder; if you've got a house, trying to figure out how much money you've made."

It's a classic problem of too much demand, not enough supply. Low interest rates have sent mortgage rates to historic lows, but people are struggling to save for deposits, with prices in some places going up in 12 months more than the average person's income. 

"We've seen that the price of housing has just skyrocketed," said Olsen, comparing it to needing a pole vault to get onto the bottom rung of a ladder.

"Once you're there interest rates are low, so people can service a mortgage with a bit more ease, but getting there is very difficult. It's getting to the stage where... the Government will be forced into some sort of knee-jerk reaction pretty quickly, because this is just an unsustainable path." 

Brad Olsen on The AM Show.
Brad Olsen on The AM Show. Photo credit: The AM Show

Prime Minister Jacinda Ardern and Grant Robertson have said in the past they don't want to see house prices fall, and have ruled out introducing a capital gains tax.  

"In New Zealand we have this aversion to changing tax, which I can understand... but at the end of the day we've got some critical issues," said Olsen, who's suggesting a rapid opening up land for construction, more funding for local government to spend on infrastructure and upping the incoming loan-to-value ratio restrictions from 30 percent to 40 percent, which would make it harder for some investors to borrow.

"We need to see a lot more land to be unlocked to ensure we can have developments going ahead. At the moment we just haven't built enough houses over the last decade. We've started to over the last five years, but we've ignored that big hole in construction that we had five years before that, just after the GFC. We need to see additional land be unlocked... 

"But I think we also need to be careful that there's no silver bullet here - we don't solve a housing crisis in a year. It's been built up over 30 years."

Some media have speculated the Government could be looking at extending the brightline test from five to 10 years. Robertson in December told Stuff he'd asked Treasury to look at how the existing rules were working. 

Olsen said doubling the length of the brightline test wouldn't make much difference, but could slightly dampen demand from investors, who perhaps wouldn't want to wait a decade to cash in - and it would perhaps be fairer than the status quo. 

"At the moment you and I will pay a fair amount of tax on our wages, but we don't pay nearly as much if we buy and sell property." 

As for NIMBYs who oppose intensification, Olsen said their complaints townhouses are destroying their suburbs are nonsense. 

"Let's be real - you only destroy a suburb if you get rid of the people in it. I'd say the suburbs are being destroyed by not having people in them. A suburb is not what looks aesthetically pleasing - it's having a great community around you."