The Government is cracking down on property investors to help first-home buyers get a foot in the door by assisting with deposits and expanding the property investment tax, as well as injecting billions to boost supply.
A breakdown of the plan:
- A $3.8 billion fund will be used to help green light tens of thousands of house builds.
- The Government will assist Kāinga Ora to borrow an additional $2 billion to boost strategic land purchases.
- Income caps for the Government's scheme meaning first-home buyers only need a 5 percent deposit will be lifted from April so more people can access it.
- The bright-line test - the tax on investment property - will be increased from five years to 10 years, but it will be kept at five for new-build investment properties. The family home will still be exempt.
- The Government will remove the ability for property investors to offset their interest expenses against their rental income when they are calculating their tax.
Cracking down on investors
The Government's highly anticipated announcement comes after recent data showed house prices had soared 20 percent in one year.
Finance Minister Grant Robertson wrote to the Reserve Bank in November seeking advice on how to stabilise house prices. With interest rates at record lows to help stimulate the wider economy during the COVID-19 pandemic, demand for property soared across the country.
Investors and speculators who already own multiple properties now make up the biggest share of buyers in the market - more than 40 percent - and the share of homes being sold to first-time buyers is shrinking, as the deposits required to get lending get further out of reach.
Prime Minister Jacinda Ardern says the new housing package aims to increase the supply of houses and remove incentives for speculators, to deliver a more "sustainable" housing market.
"The housing crisis is a problem decades in the making that will take time to turn around, but these measures will make a difference," Ardern said on Tuesday. "There is no silver bullet, but combined, all of these measures will start to make a difference."
Ardern said the Government's measures will complement the Reserve Bank reinstating loan-to-value (LVR) restrictions from March, meaning property investors must stump up a 30 percent deposit for a house.
Housing Minister Megan Woods said Government modelling estimates 80,000 to 130,000 extra houses will be built over 20 years from the new package.
The Prime Minister has ruled out a comprehensive capital gains tax as long as she's leader, but there has long been speculation the Government could increase 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.
As many commentators expected, the bright-line test has been increased to 10 years. But it will be kept at five years for new-build investment properties to help keep up supply.
"This will give Kiwis a better chance at purchasing their first family home," said Robertson. "I want to stress that the bright-line test does not and will not apply to the family home."
The Green 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 Green Party finance spokesperson Julie Anne 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."
The Government is also removing the ability for property investors to offset their interest expenses against their rental income when they are calculating their tax.
Robertson has also sought advice on debt-to-income ratios and closing a loophole on interest-only loans to speculators.
Interest-only mortgages allow property owners to pay just the interest of a mortgage for a set amount of time. The Greens are sceptical of it because of property investors who may never intend to start paying off 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 Genter.
Robertson said the Reserve Bank will report back in May on this.
Helping first-home buyers
The Government is changing the settings for first home loans and grants to make it easier for first-home buyers to get a foot in the door.
From April 1, the income caps will increase and the house price caps will also rise, in targeted areas. By increasing the income caps, the Government says about 9300 more couples and 3700 more singles will be eligible.
A further package specifically targeted at Māori housing is being developed for Budget 2021.
In 2019 the Government changed the rules so certain people only need a 5 percent home deposit before they can apply for the help. The changes were made as the Government "reset" its flagship KiwiBuild policy that flopped.
KiwiBuild failed to deliver on its targets. It promised 100,000 houses in 10 years, but so far has delivered 792. KiwiBuild was subsequently retargeted towards progressive home ownership, which enables a family to partner with a charitable provider, such as the Housing Foundation, to help them become home owners by sharing the financial burden.
Types of progressive home ownership deals are already available in New Zealand, and those available to access the Government's fund are shared ownership, rent-to-buy, and leasehold.
What are commentators saying?
Former National leader Don Brash told The AM Show successive governments have failed New Zealanders on housing because house prices have escalated "much faster than incomes for 20 years or more".
He said you can't make house prices more affordable by having them continue to rise, from what are already some of the highest in the world.
"I fundamentally disagree with him on this," said property expert Ashley Church.
"The problem that needs to be fixed is not rising house prices. That is not an issue for our country. The problem that needs to be fixed is making sure that the ability for first-home buyers - who are closed out of the market by those high deposit requirements - are allowed back into the market."
Church said house price inflation itself is "good for the country" and has been for a long time.
Dr Brash disagreed.
"You cannot have house prices rise faster than incomes - several times faster than incomes - forever. If you can't go on forever, you will eventually stop, and when it stops there will be one heck of a correction," he said.
"It is quite outrageous at the moment to pay $800,000 for 400 square metres of bare land in Flat Bush. You cannot put an affordable house on it. No matter how small the house is, it cannot be affordable."
Dr Brash said it was "ironic" that former Housing Minister Phil Twyford, who oversaw KiwiBuild's fall from grace, best-understood the fundamental issue of supply.
"The guy who most understood this in recent times was the much-maligned Phil Twyford," he said.
"When the Labour Government was elected in 2017, the Government said 'we will scrap the metropolitan urban limit around Auckland'. If they'd done that, prices would have come down - land prices would have come down and therefore house prices would have come down.
"Did they do it? No."
Church said it won't fix the housing crisis.
"All the evidence shows that when you remove that boundary or extend that boundary into your rural areas it doesn't actually reduce the cost - it actually does the opposite. The rural land increases to meet the value of the land in urban areas," he said.
"The problem is the theory doesn't meet the reality.
"I agree with Don that we need to be doing things to reduce the cost of land. But I don't think that's the solution and the reality of that is probably why the Government is looking for other solutions."
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 critics says it won't have any impact until 2024.