Greens on housing crisis: Investors must be taxed and forced to cough-up cash deposits

To solve the housing crisis, the Greens want to end interest-only mortgages, tax property investors and force them to cough-up cash deposits - not use equity from other homes.

The Greens are also calling for direct economic stimulus from the Government in the form of income support, instead of relying on the Reserve Bank, as well as a "massive" urban redevelopment and home building programme led by Kāinga Ora.

Another Greens proposal is to introduce debt to income ratios, especially for investment properties. Finance Minister Grant Robertson has sought advice from the Reserve Bank on this, as well as interest-only mortgages.  

Interest-only mortgages allow property owners to pay just the interest of a mortgage for a set amount of time. While it may seem attractive at the time and free-up cash, when it reverts to a standard home loan, repayments can skyrocket. 

Homeowners need to be sure they can service a sudden increase in monthly repayments if they're considering this type of mortgage. The Greens are sceptical of it because of property investors who may never intend to start paying the actual mortgage. 

"The Reserve Bank should be asked to limit interest-only mortgages, which exposes that many investors never even aim to pay off their principal debt until they flick a property on for massive capital gain," said Green Party finance spokesperson Julie Anne Genter. 

"Debt to income ratios should be allowed and used to slow down the highly leveraged, risky mortgages that underpin housing speculation," she added.  

"New requirements for property investors to actually have saved a cash deposit, rather than leveraging equity in other properties, would help level the playing field with first home buyers."

Green Party finance spokesperson Julie Anne Genter.
Green Party finance spokesperson Julie Anne Genter. Photo credit: Getty

Prime Minister Jacinda Ardern has ruled out introducing a capital gains tax while she's leader. But the Finance Minister hasn't ruled out an extension to the bright-line test - the tax on investment properties. 

The bright-line test means if a property is sold within five years, capital gains are taxed at the owner's income tax rate. The family home is exempt. 

With the Government set to announce demand-side measures to help ease the property market as house prices soar beyond the reach of many Kiwis, there's speculation the bright-line test could be expanded beyond five years. 

But the Greens say it won't fix anything and want the cap removed altogether. 

"Anyone selling a residential investment property that is not their primary home should have to pay tax on the profits," said Genter. 

"Any cap extension, to 10 or 15 years for example, just kicks the can down the road a few years, while property investors will hold on to their properties until the day after the bright-line test is over."

Genter says the Government's actions need to match the scale of the problem.

"We need to ask ourselves what would actually make a serious difference to address the instability of the housing crisis which is increasingly leaving New Zealanders behind."

Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr.
Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr. Photo credit: Getty

Robertson wrote to the Reserve Bank in November seeking advice on how to stabilise house prices with interest rates at record lows, after data showed prices had soared 20 percent on the same time the year before.

It must now consider the impact on house prices when making monetary and financial decisions. 

The Reserve Bank has been doing its bit to cool the housing market, by reinstating loan-to-value (LVR) restrictions from March, meaning property investors must stump up a 30 percent deposit for a house, and first-home buyers 20 percent. 

But some have questioned the Reserve Bank's Funding for Lending Programme (FLP) - making up to $28 billion available to banks at the record low interest rate of 0.25 percent, to lend and help stimulate the economy.

Given there is no requirement for banks to target the lending to productive investment, rather than property investors, some say it's just adding fuel to housing demand. 

The Government is trying to fix the housing crisis by replacing the Resource Management Act (RMA), the complex planning law blamed for holding back new developments. But with over 800 pages to be replaced, it won't be passed until 2022.

The National Policy Statement on Urban Development will require councils to reduce planning constraints and plan for growth, allowing for greater intensification in cities, but National says it won't have any impact until 2024.