Eaqubs' 'Generation Rent' deserves a hearing
Shamubeel Eaqub will have made himself unpopular with quite a number of people in this country with his new book Generation Rent, written with his economist wife Selena.
But his expose on the plight of those trapped out of homes will make him a hero to many others.
Eaqub not only says New Zealand has managed to create a class system based around money that looks a lot like the Old Country, but he's suggested a whole bunch of things we could do to return New Zealand to that inclusive, egalitarian, home-owning Godzone which we see promulgated in TV advertising, but for which many now mourn as a now-dead dream.
Eaqub is a respected economist, and the things he suggests need some serious thinking about.
Property investors: He clearly doesn't see many as being that bright. "Many investors, from our experience, do not even do the sums on whether the cash-flows from their rental property will stack up over time- or result in losses."
"We calculate that given current rents and costs, investors are probably anticipating capital gains of 8 per cent or more per year forever in places like Auckland."
He also advocates passing tenant-protection laws, moving away from the short-term/short notice period contracts that give renters little security of tenure, which will be seen as a violation of investors' property rights.
He'd also rework the tax breaks property investors get by "ring-fencing" losses on negatively geared properties to be used later to reduce tax on sale, or when the property made a profit.
"This would ensure that residential properties stand on their own merits… rather than hiding behind a tax shield."
These tax-breaks benefit higher-income earners most, and he'd look at changing the tax rules to require property investors to state their intention on purchase to determine whether the property was brought with "investment intent", or a short-term capital gains speculation.
Banks: Eaqub says banks want to see high house prices, even though he sees high house prices as being economically damaging and dangerous to the stability of the economy.
The "massive loosening" of financial standards globally (which helps explain synchronised rises in house prices in many different countries) has made it possible for the populace (investors included) to pay more and more for property.
Restricting credit availability could reduce pressure, but Eaqub says: "A more fundamental re-working of the banking sector is needed."
He says: "International rules allow banks to hold relatively little capital against their housing loans, creating a strong bias towards residential mortgage lending." This has been a key factor in banks shifting their lending focus from business borrowers to households. It's time to look at reversing some of those.
Immigrants: New Zealand struggles with the foreign buyer question. Some believe it is a big factor in driving price. Others cry racism every time someone claims that foreign buying (which turns houses into an internationally tradeable commodity) should be restricted.
Foreign buyers may be a problem, but in common which many aspects of New Zealand life, we don't collect data on it so it is hard to come to a reasoned judgement.
Eaqub would have property buyers forced to record their IRD number, tax residency and whether the house was bought as an investment with the authorities. And, he'd have the deals settled using funds from a New Zealand bank as a means of stopping money laundering through our property market.
Politicians: "Courageous leadership on housing is clearly needed, but remains absent."
That finger is pointed at the current Government, and points out that successive governments have presided over the house-price explosion. MPs on average own two homes. They are deeply conflicted.
The Government must intervene to end the artificial limitations on land available for building homes that is a major factor in making it hard, and costly, to build homes.
Generation Rent by Shamubeel and Selena Eaqub, published by Bridget Williams Books, $14.99 (paperback), $4.99 (ebook).
- Sunday Star Times