Labour diverts from housing minefield

17:00, Jul 12 2013
The housing bubble - Illustration by Sharon Murdoch.

Some people witness misfortune and remind themselves that there but for the grace of God go I. It's fair to say few are politicians.

As Labour leader David Shearer lurched from man ban crisis to leadership crisis, no-one enjoyed his misery more than his opponents on the other side of the House.

There is, of course, something of the cruelty of a cat toying with a mouse about National's response. But mostly it is simple arithmetic. When your opponents are down, you are more likely to be up. With the stopwatch set to just 12 months from now before the election campaign proper gets under way, the longer Labour can be encouraged to look hapless the better from National's perspective.

What Prime Minister John Key and his ministers really hope for is the turmoil within Labour to spill over into next year. But that can hardly be taken for granted. As events across the Tasman show, the political landscape can change dramatically, and quickly.

And there are some crunch issues looming next year that the Government must show action on, or it will be vulnerable.

The economy might be picking up but it's patchy, and in powerhouse region Auckland the perception that the city is going gangbusters is based mostly on the sale of some hot property in Auckland's pricier suburbs. In economic growth, and job growth, the story is much more modest.


That is why the Government is pushing through projects like the international convention centre; the feelgood factor of jobs and a construction boom outweigh the short-term fallout over pokies, from its point of view.

The Auckland housing bubble, meanwhile, is looming as a potential crisis that is causing ongoing unease at the Reserve Bank and around the Cabinet table.

There is an expectation that it will spread, with Nelson, Tauranga and Queenstown likely to be next in line.

Labour's housing policy – a promise to deliver 100,000 affordable homes over 10 years – clearly got some traction with voters who felt that the Government had been sitting on its hands as prices started to take off again in Auckland.

As buyers scramble for properties, first-home-buyer panic, last seen in the early 2000s, has started to take hold again. That makes it a hot button generational issue; parents and grandparents worry about whether the younger generation will ever be able to afford a home and settle down.

The Government's response was a new sense of urgency towards work being done across a range of fronts – standardised building consents across the country, streamlining the Resource Management Act and its Housing Accord policy among others.

Mr Key underscored the urgency by using a Cabinet reshuffle to return Nick Smith to Cabinet and install him in the housing portfolio, which had suffered from inertia.

Dr Smith has taken his usual action-man approach to the portfolio; he is spending a day a week in Auckland liaising with developers and the Auckland Council to make sure the Government meets its goal of 39,000 new houses in three years.

Various sites in Auckland have already been earmarked for development under the Housing Accord and the Government is desperate to get one or more under way by Christmas. Under the Housing Accord's streamlined resource consents process it believes it will take only a year to get new subdivisions under way, compared with up to seven years in some cases via the usual route.

The Government's reasons for urgency are not just political (even if admittedly every decision by government is political in the end).

The Auckland housing bubble is being driven by a shortage of supply. It is hoped that pumping more houses into the market very quickly will take out some of the heat and rising sense of panic, with buyers prepared to wait for the new houses to come on stream, and developers realising they could miss out if they have been land banking in expectation of bigger capital gains down the track.

If it fails in that goal, the Reserve Bank may have no choice but to push up interest rates sooner and harder, which is both political poison in election year and a huge economic handbrake, given the likely effect on the New Zealand dollar.

That is where the Reserve Bank's consideration of tools other than interest rates to cool the housing market comes in.

Reserve Bank Governor Graeme Wheeler has suggested that if boosting the supply of housing dampens Auckland's housing sufficiently, an interest rate cut might even be possible.

The bank has also been actively talking up the option of rationing the number of low-deposit mortgages given out by banks.

Government insiders admit the bank has put ideas like rationing low-deposit loans on the table faster than expected when it signed off a new framework with Mr Wheeler.

That has left it looking flat-footed against the likelihood that the threat of rationing will only serve to stoke the fire under the Auckland housing bubble, as first-home buyers race to get in before the rules change.

The option being looked at by the Reserve Bank would allow for as few as 10 per cent of new mortgages to be given to buyers with deposits lower than 20 per cent.

With the bank's own figures suggesting 30 per cent of new mortgages are approved to low-deposit buyers, most of them likely to be first-home buyers, the size of the Government's political headache is obvious.

Mr Key attempted to take some of the heat out of the debate by suggesting there could be a carve-out for first-home buyers. But the first-home buyer's dilemma is purely a political problem from the Reserve Bank's point of view. Any move on that front would dilute the effectiveness of rationing low-deposit loans. Senior ministers are pessimistic that the Reserve Bank will go there.

That puts the onus back on the Government to find a policy fix.

Options being wrestled with behind the scenes include expanding the accessibility of the KiwiSaver and Welcome Home first-home buyers' schemes to make it easier for first-home buyers to scrape together a 20 per cent deposit.

Under KiwiSaver rules, first-home buyers can withdraw their own and their employer's contributions to put toward a deposit. But they can't withdraw the government's contributions, including the $1000 kick start. One option would be to allow them to do so, since it would cost the Government nothing extra.

The scheme also allows some KiwiSavers on lower incomes to access a subsidy worth $1000 for each year they've been contributing.

Tinkering with the eligibility criteria for that scheme is also an option being discussed.

National may not be too worried about the headlines at the moment, given that Labour is doing a good job of hogging those.

But the twin evils of headlines about interest rate hikes and first home buyers being locked out of the property market are the last thing it wants in an election year.

The Dominion Post