Land, not tax, favoured to cool housing

STILL HIGH: Although the boom has started to unwind, house prices remain above long-term levels.
STILL HIGH: Although the boom has started to unwind, house prices remain above long-term levels.

An immediate release of land for residential development - rather than a capital gains tax - will ease soaring house prices, a new report says.

The Productivity Commission today released its final report on the housing market, following a house price boom early last decade. It recommends a series of measures to reduce the pressure on prices and support those struggling to get on the property ladder.

Between 2001 and 2007, real house prices almost doubled - an average increase of 12 per cent per year.

Although the boom has started to unwind, house prices remain above long-term levels. The number of households with at least one person employed which cannot afford to buy a dwelling has risen to 58 per cent of all private renters.

Commission Chair Murray Sherwin said younger people and those on lower incomes have ''much less chance of ever purchasing their own home".

The Labour Party proposed a capital gains tax in the run-up to last year's election, sparking debate about whether tax policies had fuelled the boom.

However, the report concluded that changing the taxation of housing would not solve the crisis - and may have unintended effects on the affordability.

"The tax advantages attached to housing are not as large as often claimed," the report said.

Instead, the commission suggested allowing the release of "significant tracts" of greenfield land on the urban fringes on Auckland, Christchurch, Hamilton and Tauranga to the market. It also advocated more brownfield - abandoned or underused industrial - urban land being redeveloped.

Councils also need to speed up their regulatory processes, the report said. Planning policies - like height controls, boundary setbacks and minimum lot sizes are putting a "handbrake" on supply.

The sluggish building consent process and the enforcement of codes and regulations can also affect affordability and the performance of authorities "can and should be lifted".

Guidelines imposing infrastructure charges on developers should be reviewed, the commission recommended.

"Councils should also ensure they aren't putting up barriers to development and should take a less constrained approach to urban planning. There also needs to be a review of regulatory processes with the aim of speeding up and simplifying consent processes," Sherwin said.

"There is no need for our homes to be expensive - we can construct quality, affordable homes. But, it will take councils and developers to work together so that sections can come to market quickly at a price that allows the building of homes at an affordable price."

The commission also noted that building industry productivity is ''flatlining'' and smaller firms need assistance.

The report also examined the private rental market and noted quality is "generally low". However, it decided the increasing the Accommodation Supplement benefit "would be costly and may be appropriated by the landlord through higher rents".

The commission believed restoring the "missing rung" on the property ladder will instead ease pressure on the market.

The Government also came in for criticism over its housing assistance policies, which cost about $3 billion a year. 

Moving state tenants on may force them to accept inadequate alternatives, the report said. It recommended beefing up the community housing sector but said the Social Housing Fund, set up to help it grow "is not equal to the task demanded of it".

Finance Minister Bill English said he would take time to consider the ''thoughtful contribution".

However, Green party co-leader Russel Norman said relaxing city boundaries "will simply lead to further unsustainable urban sprawl and further congestion on Auckland's roads".

He said the commission's findings on capital gains tax were incongruous with reports by the Savings Workings Group and the OECD last year.
"The lack of a comprehensive tax on capital gains is keeping the dream of home ownership out of reach for many New Zealanders, especially first home buyers who struggle to get a foot on the home ownership ladder," Norman said.
The Savings Working Group found house prices rose an additional 50 per cent from 2001 to 2007 due to the preferential tax treatment of housing.
The OECD found that the absence of a capital gains tax significantly affected home affordability and lead to disproportionate levels of investment into housing.