10. GORDON COPELAND (United Future) Link to this
to the Minister of Finance
Is work being carried out by the Treasury on a possible link between continuing high house prices, artificial constraints in the supply of land and the price of housing; if so, what is the current status of that work?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
Treasury, obviously, is involved in a wide range of work on housing, but it is not currently working on the specific matter raised by the member.
Does the Minister agree that raising the official cash rate has done little, if anything, to dampen the property market, and is it possible that the variable most responsible for continuing high house prices may be the restraints placed on the supply of land for new housing?
Hon Dr MICHAEL CULLEN Link to this
No, I do not agree with the latter point. I think one of the problems is that with the high proportion of fixed-rate mortgages, it sometimes takes quite a long time for monetary policy tightening to flow through into household incomes and disposable incomes. There are signs that it has been occurring in recent months. I think the problem with the member’s assertion is that, presumably, it would lead to the logic that one should have a variable land supply as a means of moderating demand and supply within the economy, which I think could be pretty difficult to work in practice.
R Doug WoolertonIs the Minister concerned about the potential loss of valuable, highly productive land if constraints were to be removed from city housing expansion?
Hon Dr MICHAEL CULLEN Link to this
The member raises actually a very important and interesting point—that it is all very well to look at the housing issue from one specific side, but there are a whole range of other issues around land use that also have to be considered. One of those is the maintenance of land in a productive capacity in the rural sector, and at a reasonable enough price for the productive sector to be able to make a profit out of that land.
Sue BradfordIs work being carried out by Treasury on a possible link between the way property investors can claim tax losses against their investment and against their income tax, and rising housing unaffordability; if not, is the Government considering making any changes in this area?
Hon Dr MICHAEL CULLEN Link to this
On many occasions these issues have been looked at by Treasury, and, obviously, suggestions come forward from the general public. I think the conclusion that tends to emerge at the end of the day is that it does not seem to make a lot of difference. Countries like Australia, which have heavy stamp duties on housing and which have a quite different kind of capital gains tax regime, have at least as marked housing cycles as New Zealand does, so it does not seem to be a particular answer to the actual problem in that respect.
In the light of that response, is the Minister aware that in Australia the Federal Government is now giving a lot of attention to the freeing up of land for housing, does he see a role for Treasury in making housing more affordable for first-time homeowners, and would that include a rigorous economic analysis of any link between rising house prices and the availability of land for new subdivisions?
Hon Dr MICHAEL CULLEN Link to this
The Government is already taking a number of actions that, over time, will assist in the affordability of housing for first home owners, which, obviously, is where the key concern should be. After all, once one is into the first home, then rising house prices is an entry on both sides of the ledger from the point of view of most families, depending on which part of the country they are living in. But again—going back to the previous answer—it is important to be careful in this respect. The Australians do have, of course, a lot more land to free up, but they are also running into enormous problems around water supplies, not least because of urban demands.
Is any work being carried out by Treasury on a possible link between the lack of a capital gains tax and continuing high house prices here; and does the Minister accept that a capital gains tax on property sales apart from the family home could help to make housing more affordable again?
Hon Dr MICHAEL CULLEN Link to this
I think it is extremely hard to make that connection between a capital gains tax and the affordability of housing, in so far as there has never been a theoretical argument put forward about a capital gains tax on housing. It is more in the direction of a level playing field around investment; it is not around the notion that it will make houses cheaper. Indeed, it is very hard to see how it would necessarily make houses cheaper.
Keith LockeWhat concerns does the Minister have about extending the urban limit, in addition to the matter raised by Doug Woolerton—such as, the cost to New Zealand in extra Kyoto Protocol carbon credits from allowing urban sprawl to continue largely unchanged in places like Auckland, and the fact that it makes it more difficult to establish a viable public transport system to replace some of the longer car journeys from the suburbs?
Hon Dr MICHAEL CULLEN Link to this
Again I think that is a very good point. Obviously, unlimited urban sprawl simply raises the difficulties around providing adequate public transport, which is already a major issue in terms of public transport in Auckland because of the very large amount of urban sprawl and the distances to be covered in relation to the size of the population. We are very different from, say, compact-style European cities. So there are a lot of factors that need to be taken into account. It would be very undesirable to seek short-term solutions for a particular point in the housing cycle, which would have long-term damaging consequences from the point of view of New Zealand’s social, economic, and environmental development.
Te Ururoa Flavell Link to this
What advice has Treasury provided to respond to the damning finding in the Social Report 2006 that the proportion of low-income households who are spending more than 30 percent of their incomes on housing is over twice as high as it was in 1988, and that of those, Māori are highly overrepresented?
Hon Dr MICHAEL CULLEN Link to this
It underlines the importance of policies such as the Working for Families package, other means to assist with housing acquisition, the rates rebate scheme, and a whole range of measures targeted to try to ensure that people on low to modest incomes are able to be in a better position to afford housing. Of course, as we move to the next stage of the economic cycle and monetary policy eases back again at some point in the future, that housing affordability index will show, again, quite a significant change. It is a very cyclical measure of what is happening in society.