Editorial: Tax system part of housing woes

18:46, Oct 31 2012

A capital gains tax is not a magic bullet to slay New Zealand's housing woes.

The Productivity Commission's well-researched report on housing affordability makes it clear that there are a number of reasons why the New Zealand dream of home ownership is slipping from the grasp of many young Kiwis.

Prominent among them are planning restrictions on new developments, resource consent delays, the rising cost of building materials and what the commission called New Zealanders' appetite for ''bespoke'' housing.

We do not want to live in a house that looks like every other one in the street.

However, the tax system cannot be excluded from the mix. New Zealand is rare in the developed world in not routinely taxing capital gains on property investments.

The consequence is entirely predictable. New Zealanders over-invest in property, pushing the prices of homes beyond the reach of many.


Since the early 1990s the proportion of people owning their own homes has declined from 75 per cent to 65 per cent. Houses are simply too expensive. In Auckland, where the pressure on the housing market is greatest, even paying the rent can be a challenge for those on incomes that much of the rest of the country would consider adequate.

To rule out a capital gains tax, as Prime Minister John Key and his deputy Bill English have repeatedly done, is to do a disservice to those struggling to get on the first rung of the housing ladder. But that is not the only consequence of a distortionary tax system. By encouraging speculative investment in bricks and mortar the tax system discourages investment in the productive sectors of the economy that generate jobs.

The commission handed its report to the Government in April. On Tuesday, Mr English announced its response.

The Government will loosen planning restrictions designed to curb urban sprawl, speed up the processing of resource consent applications and explore the possibility of amalgamating building consent authorities.

Essentially, the deputy prime minister is saying the Government will put the interests of those shut out of  the property market ahead of those who already have a foothold in it. In order to make new homes more affordable, Aucklanders may have to put up with busier roads, more disruption of services, and restricted views.

The population pressures are not the same in Wellington as in Auckland. There the population is projected to increase by 1.2 million in the next 30 years. However, here, too, developers made no secret of their frustration at planning restrictions designed to condhcentrate the population in and around the city. Change could be coming.

However, until the Government also opts to put the interest of those shut out of the market ahead of those speculating in it, the problem will not be solved.

Investors respond to the environment in which they operate, not political rhetoric. While the tax system continues to encourage speculative investment they will continue to invest speculatively.

The Dominion Post