Who benefits from enabling housing development? And who bears the costs of restricting it?

One common refrain is that reducing regulations to enable housing will deliver higher profits to developers, while disadvantaging existing homeowners, who must contend with more people living in the neighbourhood. Another view is that restricting housing supply primarily benefits existing homeowners, who earn (untaxed) capital gains, while disadvantaging people who don’t own homes.

Along with Fran O’Sullivan, Arthur Grimes, Bernard Hickey, and many other commentators, I tend to agree with the second viewpoint: The primary distributional impact of restrictions on housing supply is to benefit existing homeowners at the expense of future homeowners. In this post I will argue that 1) we face a choice between existing and future home owners and 2) profits from development pale in comparison to untaxed capital gains on property.

So if you’re concerned about rampant profiteering, then you should be in favour of enabling more housing development.

Profit, homeowners, and false dichotomies

Developers undoubtedly set out to make a profit. They are after all putting their own time and money into building something, which in the process exposes them to risks. In this context it seems reasonable that they get something in return, otherwise, why would they develop housing at all? Whether developers earn a reasonable profit then effectively comes down to competition, and the best way to encourage competition is to enable lots of people to be developers.

In general, the more we restrict and regulate the supply of housing, then we will get less supply and less competition.

Those who rally against developers making profits seem to ignore that most of Auckland’s existing housing stock resulted from profit-seeking developers. This includes many houses that are now protected for heritage reasons. So it’s not clear to me that simply because developers are look to make a profit today, that the resulting developments will not be valued.

It is certainly fair to say that developers will only able to make a profit from development if they build something that people are prepared to pay for today. This is another way of saying that developers must consider their customers , i.e. people who want somewhere to live. So it strikes me as a false dichotomy for people to argue that developers “put profit before people”: If developers didn’t meet the needs of at least ***some*** people, then they wouldn’t make a profit.

Instead, the main trade-off seems to be between existing and future homeowners. I think Arthur Grimes described the trade-off best when he said (source):

My call for policies to drive a house price collapse is driven by my personal value judgement that it’s great for young families and families on lower incomes, to be able to afford to buy a house if they wish to do so. My concern is not for older, richer families, couples or individuals who already own their own (highly appreciated) house.

In this quote Arthur observes that we primarily have a choice between existing homeowners and future homeowners. He doesn’t mention developers at all. So when councillors vote for regulations that restrict housing supply, they are effectively voting in favour of existing homeowners. This is fine, provided they are comfortable with adopting what I consider to be a typically conservative position. These councillors are, in effect, behaving like Tories; they are protecting those who already have wealth.

The effects of restricting supply: Dislocation and rampant profits

However, building new homes isn’t the only – or even the main – way to make a profit in Auckland’s current housing market. Due to restricted housing supply, we aren’t building enough homes to meet demand. As a result, prices have risen.

Rising prices has two primary effects. First, it squeezes low-income people out of the market. This is a well-documented phenomenon. As the California Legislative Analyst’s Office found in an analysis of the San Francisco Bay Area, suburbs that developed less housing experienced more displacement. Without new housing development, every new resident must displace an existing resident – a vicious dynamic that hits low-income households hardest:

LAO development and displacement chart

A lack of housing supply is compounded by distortionary tax policies – principally our unwillingness to tax unearned capital gains on housing – with the result that house prices are going up at a fast clip. This provides an unearned, untaxed capital gains windfall for people who are lucky enough to own property.

Unearned capital gains, unlike developer profits, are a win-lose scenario. People who own houses win, as the value of their assets rise. But people who are renting or trying to buy a home lose to an equal extent, as they face higher and higher prices.

So how large are capital gains compared to developer profits, anyway?

In recent years, untaxed capital gains on residential property have been very large relative to developer profits. According to data from the Reserve Bank, untaxed capital gains on residential property exceeded $100 billion last year:

  • In the first quarter of 2016, the total value of residential property in New Zealand was $905 billion
  • One year earlier, the value of residential property was only $791 billion.

By comparison, according to Statistics NZ’s most recent (2014) Annual Enterprise Survey, which tracks industry performance, residential housing construction firms (ANZSIC E301) made gross, before-tax profits of a mere $570 million. Even if we add in “other construction services” (ANZSIC E321, E322, E323, E324, and E329), which includes land development firms as well as a whole bunch of other stuff, total residential development profits add up to no more than $2 billion a year, before tax. And developers pay taxes on those profits! For the visual learners out there, here’s the data in a chart:

Developer profits vs capital gains chart

In other words, the profits that developers earn are relatively insignificant compared to the unearned, untaxed capital gains that have accrued to property owners. I would argue that the latter are largely the result of regulations that restrict housing supply, and hence represent a transfer from future homeowners, and to a lesser degree developers, to existing homeowners.

So what’s the takeaway message from all this? Well, if Councillors like Mike Lee and Cathy Casey are concerned about profiteering in New Zealand society (and they say they are), then they should start pushing to enable more housing development in Auckland. Yes, developers may make slightly more money in the process, but this increase pales in comparison to the reduction in untaxed capital gains that would accrue to existing home-owners. If you’re concerned about people making unearned profits, then regulations that restrict housing supply and which drive up the prices of existing dwellings should be your primary target.

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  1. Existing homeowners may well be horrified at their supposed capital gain, which they cannot realise unless they wish to leave the area where they have community ties, and which has the likely effect of excluding their own adult children from the area or even the city the parent lives in. To stand accused of Intergenerational theft for simply meeting your own housing needs, likely with difficulty during your own youth, is not a pleasant situation.

    Speaking as one such, I look forward to being able to downsize one day into an attractive apartment built in my own area to universal design and eco standards. Will THAT happen, under the proposed regime?

    1. Well there is your answer. Under the unitary plan most homeowners will have the ability to divide their homes into two, or rebuild onsite into apartments or terraces.

      So they can realize capital gains and downsize in their same neighborhood at the same time.

  2. Of course developers that land bank get the capital gain also. But on the whole yes we need to increase supply to stop the capital gain in housing.

  3. The elephant in the room with this situation is that existing home owners are a very significant proportion of local government voters so if they favour the current situation they are likely to continue to vote for representatives that protect it. This is a problem.

    1. I guess one question is how long must things continue at the current rate before that mystical category of “renters who actually vote” becomes large enough to have a political influence? There must be an increasing number of people who are politically engaged enough and would otherwise be homeowners if not for the current bubble.

    2. Of course any policy that succeeds in making housing more attainable thereby also turns some Future Homeowners into Current Homeowners… so really the solution needs to be something that works for both groups.

    3. People who own their own home and no more don’t really benefit from rising prices or lose out from falling prices. It is only investors who are truly “long” on housing.

        1. Simon, exactly. A subset of homeowners are still “short” on housing. Eg People in their first home with a growing family.

  4. Property development is also risky business. There are often unknown supply delays, labour delays, land issues, building issues, regulatory delays and mistakes that all take time and money to rectify. I have seen a few small developers make large losses because they were not factored in or were mismanaged when they occurred. My minimum profit on a development must be 30% otherwise it is too risky.

    1. If the council can streamline the compliance process to have more certainly, the risk could be migrated.

      That could encourage more developers to create competition.

      Added by more developable land, increase the number of developments.

      This creates economic of scale. That will in turn make the business that supplys labour and material run in a scalable and efficient manner.

      For example, materials can be order in bulk and labours becomes more specialised and efficient.

      This will create new business of recruitment agency who specialises in the construction labour resources.

      All of that cuts the cost and reduce risk. It will create a viscous cycle that encourages more developers.

      So at the end the profit margins will competitive and reduced.

  5. Property development is also risky business. There are often unknown supply delays, labour delays, land issues, building issues, regulatory delays and mistakes that all take time and money to rectify. I have seen a few small developers make large losses because they were not factored in or were mismanaged when they occurred.

  6. It’s incredibly naive to compare the capital gains on the entire NZ housing stock with the developer profits from just one year.

      1. The chart makes a great point but it is valid to ask whether it shows all capital gains for that one year, or just realised capital gains? I would think the latter would be a more useful figure in terms of showing potential government revenue compared to what the government is making from taxing developers.

        1. Agree, many of these capital gains will either not be realised, or will be realised over a much longer period than a year, it’s quite possible that if we did this graph in a few years the capital gains column could be negative.

          1. If you did the capital gains graph over 2 years it would be twice as big!

            Capital gains may not be realised until a number of years, but in the number of year the captial gains will be a number of years larger. You can compare 10 years of capital gain vs 10 years of developer profits, and i think you will find the ratio remains the same. In a year of limited capital gain, the developer profits will also be limited.

          2. Dan the graph show theoretical capital gains as there is not gain until something is sold and as the whole housing stock of the country has not been sold in the last year so the gains are not real.

          3. Matthew I will put it too you a different way. My neighbour is selling his house he bought 10 years ago for $250K, no bids at the auction, the agent tells him it will sell for $795K and four months on he has had only one offer for $600K (that he turned down), what is his capital gain? In theory it could be $545K (if you believe the agent) or $350K (if you believe the only buyer interested enough to put in an offer) but in reality there has not been any gain as he has not sold it.

          4. Yes there is uncertainty about the value, particularly for individual houses, doesn’t make it unreal though in any way that is relevant to the point Stu was making.

          5. Matthew, Stu did some very good work collecting information and creating this post but the graph showing theoretical gains as is they were real capital gains ruins the whole post and the good work he did. Showing theoretical gains over the whole countries housing stock using averages and medians (that are collected from actual sales, in many parts of Auckland and probably the country the cheap houses are not selling effectively skewing the figures) and applying them to everything over the whole county does no one any good.

          6. As opposed to the annual enterprise survey collecting samples and applying them to everything over the whole county does no one any good. Those dastardly SNZ people

          7. I guess we can choose to believe what we want, but in the absence of a proper argument against it, I am pretty comfortable that the conclusions Stu has drawn are reasonable even accounting for uncertainty in the data.

          8. Ted, you’re capital gain is whatever the valuation is at the time. Just like any other asset, equipment, plant, shareholding etc. You’re friend could go and get a registered valuation of their house and then borrow money against it or put it up as security against a business investment, a new car or whatever.

            You’d don’t need to sell an asset to benefit from it’s capital gain FFS!

          9. Nick you have several things confused.
            1. Your not You’re.
            2. Capital gain and equity are different, you are talking about equity but calling it capital gain.
            3. Registered valuations are just someone elses option of the value, they use lots of figure to arrive at it but it is still one persons opinion.
            4. Valuation and value are different things, a valuations is someones option of what something will sell for and value is what it actually sells for.
            5. Something does need to be sold to get a true value and only then can a capital gain be calculated.

            He has already bought another house and just wants his money out so borrowing money against it for a car is not really what he needs right now.

          10. Bigted, the distinction you’re drawing between realised and unrealised capital gains is not relevant to this post even if it is relevant to tax settings.

            My point is that people who own property have realised high returns (profits) due to capital gains. These gains can be realised at any point, hence are “real”.

            To put it another way, if a business owns an asset, and that asset appreciates in value, then that increase will show up positively on the net worth of the company (and share price, if its publicly listed).

            Its real value, and that’s all that matters to this discussion.

          11. Stu as the majority of houses are owner occupied taxes, profits, net worth, share prices and balance sheets are irrelevant to them.
            A capital gain is not real until the asset is sold, until then it is just increased equity (increased equity doesn’t only rely on gains it also has to do with how much you have paid off). Owner occupied houses (the vast majority) any capital gain is irrelevant unless you are cashing up or leaving the district as you will have tho buy in the same market as you sell when trading up (of down) and any gain your house has made has also been made on the property you are buying.

            You can not assume that all houses are gaining value (and calling it a capital gain) by adding the average increase in average sale price as not all types are properties are selling (cheaper properties are not selling at the same rate as the more expensive ones) so that figure is irrelevant when applying it to everything.

          12. The main issue with this graph is it is comparing two quite different things, one is a profit that has been realised, and the other is a capital gain, some of which will have been realised and thus is a real profit, but the majority of it just appears on balance sheets and has yet to be realised and could completely evaporate. Also it is done in a year that is particularly favourable for housing gains, the same graph around 2010, would have had a negative capital gain.

            This of course doesn’t detract from the overall post, which is spot on and raises some excellent points, just not sure that last graph would stand up to peer review.

        2. If you had a 2% land tax. Then land tax revenue from Stu’s one year appreciation of property values (if we assume it was all increasing land values not increasing value of built structures -which in theory should depreciate) would equal the value of developers taxable profits.

          Of course land tax revenue is ongoing -the state would get the extra land tax revenue forever until property values fall. If in year 2, property prices went up again by a similar amount then land tax revenues would be double the value of developers taxable profits. Year 3 -continued appreciation in property values -triple…….

          1. Yes the state would still get revenue just a bit less -it is set as a percentage of land values. If land values go down by a given amount -land tax revenues fall by the land tax percentage of that amount. If land values go up by a % -revenues rise by that %.

            Land tax revenue would be a more reliable taxation source compared to capital gains tax -which would boom and bust -in a declining market the state would get no capital gains tax revenue.

          2. That makes sense. I think it would have to pro-rated to average values in the same way rates are, or it would be too exposed to a significant downwards correction.

          3. I would think that reducing the tax in a declining market would be a plus? As in it would slow the rate of decline and thereby reduce the scale of negative effects.

        3. I dont think Stu’s comment is primarily about government tax take though, it is about wealth transfer. And yes it we dont get that level of capital gains every year, but it is 50 times in one year. So even if you even things out it is going to be a big number.

      2. But the majority of those capital gains are unrealised! If there is a house price correction those gains could vanish, or may stagnate.

      3. yes, but the capital gain is on the entire NZ housing stock, built since year dot, while the development profits are for one year, for only recent developments.

  7. It’s not a case of one or the other. Developers need to make a profit, otherwise why would they do it? But no-one is (knowingly) going to buy a house that will fall in value, so capital gains are also ‘required’.

    1. Jim that’s a telling comment. I think Stu is suggesting that it would be better if people bought dwellings primarily in order to have somewhere to live, rather than using the housing market like a tax-free casino.

    2. People buy things that will later fall in value all the time just so they can secure the use of them for however long – see cars and effectively all consumer goods.

    3. Capital gains arent required. People will buy a property that will either give them an acceptable return as an investor or that will give them the benefit of housing consumption as an owner occupier. None of those return streams “require” capital gains.

      1. Exactly if investors/landlords target a reasonable rental return -as long as that stacks up against other investment returns -putting money in the bank etc then they don’t need capital gains.

        1. If investors/landlords target a reasonable rental return that didn’t include a provision for a capital gain then the rents would be higher, much higher than they are now taking into account the interest on the loan, rates, insurance etc.

          1. Errr…really? In a housing market with little or no capital gains, house prices will be massively lower than in a market like we have now. So rents will be massively lower.

          2. Nick, jezza the high prices are due to demand being higher than supply something you learn in basic third form economics.

          3. Bigted – why do you attack people with thinly veiled insults (such as suggesting I don’t know anything about supply and demand), when all I was doing was pointing out the other side of the equation for viable returns on housing?

          4. Sorry about that jezza, I’ve just reread your comment and realise you are saying the opposite to Nick.

    4. People buy houses to have a permanent place to live. I don’t think they have very high capital gains in Germany but people still buy houses.

  8. Hi Stu can you clarify what you mean by capital gains in terms of the figures ? If I am reading your essay correctly (and I will admit its been a quick ready only at this point) I interpret it to mean all property and all property owners
    irregardless of weather that property has been sold/brought recently? I would say for many existing home owners – of a single dwelling which they occupy and are not intending to sell this is very theoretical money – its not real and only the market at the time of selling will reflect what capital gains will be made – and that indeed for some who have brought in recent years turn out to be negative as was the case for a friend of mine who had to walk away from his house in the US in the last financial crisis. In fact even now if you sell a house which has appreciated substantially then try to buy another in the same market which is subject to the same house price inflationary forces then your net capital gain will be minimal. So I would say many existing home owners would not be unhappy with prices dropping – and it is a little bit polarising to make it a “them” and “us” issue when we all need to work together to make the most liveable and fair Auckland we can. I guess significant capital gains is most relevant for those selling to cash in on equity in particular those who are leaving the mad market or those with multiple properties who might or might not be speculators – I would be interested to see the numbers on the net capital gains for these sort of situations (forgive me if thats what you presented it was not clear to me). Otherwise I would be interested on your take on those land-banking -I have read discussions about proported developers buying up Special Housing Areas that then don’t seem to be being built on as rapidly as promised and even onsold – is that predominant strategy. If it is it would argue somewhat in favour of some of your essay points as those developers must see the profit on capital gains to be more significant than those of current development of the land.

  9. Except you’re missing the elephant in the room: state involvement.

    The state builds roads (via sub-contracting of private companies, admittedly), the state builds libraries, the state builds bridges

    The state could easily subcontract for 50,000 houses. No workers? Train them. Again, it CAN BE DONE. People forget just how powerful the state is – it could scale up industry training at the stroke of a pen. Then it could push the need for a Stakhanovite effort to achieve it.

    Many people say the private sector is superior to the public sector. I ask them why mercenary companies, so prevalent in the middle ages, suddenly disappeared? Because private forces can never stand the field against people motivated by nationalism – and the same will apply with a true Kiwi Build programme.

    1. Agreed. the state is the biggest entity in our markets, it is an important part of GDP and it has a long history as a property developer/speculator going right back to Te Tiriti O Waitangi. The Crown’s main objective was preemption of land, they wanted the right to be the first buyer.
      They market can provide for those who can afford to pay. But it has never provided for those who can’t.

  10. I don’t see why developers making profits is such a big issue, after all they are the ones that take the risks do the work to get the development over the line etc. We all go to work to earn money for ourselves, either through the work we do the skills we offer or the risks we take, but for some reason it has been decided some professions are not deserving of making money.

    Incidentally, there are property developers listed on the NZX – if people think they are a license to print money, then jump in and get some for yourself.

  11. While I agree with most of the post, I disagree with the idea developers will only build what people will buy and that will ensure quality developments. This is also a notion being championed at the moment by Ockham too. This may well work in suburbs like Remuera but in lower socio economic areas developers are vastly more prone to build and rent out what they can get away with in the name of “affordable housing”. Surprisingly not all developers are noble philanthropists and will take a lot of shortcuts if given half the chance to turn a bigger profits.

    So I’m not a fan of getting rid of all minimum standards. Sub standard developments built over the years tend to deteriorate quickly. I don’t think our city needs a legacy of more of these strewn across Auckland. There are a lot of small time developers and property investors who will be rubbing their hands at the prospect of windowless 1mx2m bedroom.

    I think the council needs to find a better balance of not slowing down developers but maintaining healthy minimal standards.

    1. Someone has to buy them though RHarris. Shouldnt the level of acceptable quality be up to the buyer to determine?

      1. IF they have the choice, within their price range. Let’s remember there are people at the moment paying $400 a week to live in a garage – they have no choice.
        We regulate building specs, like insulation and double glazing – we don’t leave it to the market to decide what is best.

      1. Arguably the building code is lousy and inadequate. That’s not to say add another layer, but as long as government keeps its head in the sand on code standards, you can understand why people are tempted to do so.

    2. To quote a tradie I was using a few months ago:
      I watched them build 3 state houses across the valley from us.
      They put the steel reinforcing into the foundations of the first house and got it signed off.
      Then they moved it into the next set of foundations, poured the first lot and got the second one signed off.
      Then they moved it to the third house, which is the one that actually got the steel.

      1. I’ve sadly heard plenty of anecdotal stories similar to this. In some ways its criminal. I just hope homes don’t start falling apart in 10 years. I wouldn’t want to be a council building inspector.

  12. Entry level for builders is now almost impossible so leaves the market to a small group of house companies who employ an army of builders.The housing companies and their suppliers now control the market so is in their interests to keep the cost of housing high to maximise profits. Stu your developers profits are very much understated as those active in the market have sophisticated strategies to minimise profits and maximise untaxed capital gain. The game changer is the government doing a massive social housing build itself rather than contracting to the same housing companies who are rubbing their hands in anticipation of the profits. The other more difficult solution is for Government or some council agency providing entry level access to development land ie aka hobsonville point but open it up to individual; builders instead of the closed shop club of housing companies working there at the moment. You will never break the current monopoly unless the access to supply of land is opened up.

    1. I’m also curious as to why individuals can’t buy a piece of land over here to build a house. It’s the most normal thing back in Europe. Why is it that we need a big developer to build a dozen, or even hundreds of houses at a time?

      1. The big developer is not always the one building the houses, a lot just deal with subdividing the land, building roads, putting in infrastructure etc then sell sections that builders buy the land and build on.

        1. What you see here, for instance in Hobsonville Point, is that the developers just build everything. You can buy the houses off the plan. You cannot buy one of these little lots and hire an architect by yourself to build your house. Perhaps the most outrageous example lately is that an entire fifth of the Christchurch CBD was awarded to one developer.

          You also see developers buying a large lot (maybe a couple of 1000’s m²) and then building a group of townhouses on that lot. AFAIK these developers enjoy more generous zoning than anyone building a single house on a small lot.

          But for a single house? I have looked around and I couldn’t find anything.

          1. Well I looked in the wrong place I guess.

            But still, at $2000/m² the price tag is pretty steep though, apparently you can have a similarly sized lot with one of their“Axis series affordable homes” on it for roughly the same price (or only slightly more).

  13. This again highlights the fact that a comprehensive capital gains tax is an absolute necessity. How is that a person can have an income of $5000 a month, from four rental properties, and not pay any tax on that income? Meanwhile the rest of us that actually work for our modest incomes, contribute to the tax system, not always happily, but we do contribute. A country requires taxation to function and while those that profit via property may not contribute, they most certainly benefit. Like that rich person argument of why they should contribute to a less fortunate’s income through a benefit, we might ask why we the hardworking modest income types have to pay for the roads and the paper trail that allows these tax dodgers to drive their nice cars everywhere and continue to find ways to contribute less to society. Casually looking at new apartment builds downtown, an estate agent assured me that $11,000 per square metre was the new bottom line on freehold apartments, valueing my apartment at more than double what it was bought for only three years ago. So the disease is now effecting apartments…anything to do with investors? No. EVERYTHING to do with untaxed, overleveraged underworked conscience lacking excuses for humans that “invest” in property. They are as bad as Messi and even Spain is doing something about him. When will the state wake from this ignorant slumber?

    1. I agree we should be taxing all capital gains as they are an earning, however I’m not sure there is any evidence they have any impact on boom cycles such as what we are in at the moment.

    2. There is no monthly capital gain on rental properties (unless they are being sold every month) as there is no gain until the property is actually sold, income from rent is very different and very taxable.

        1. Obviously, if you want to rent permanently then great. You pay tax on that rental income, maintain the property and it only gets taxed when it is inherited (realised). If you are renting and then sell, you should pay CGT.

  14. Why blindly accept the demand in the first place? How about saying no to rampant immigration and offshore investment in our housing stock? Outlawing overseas ownership of houses in Auckland, and taxing local property investors at a level that makes it almost unviable to do, will collapse the “demand”, and resolution of the housing crisis will quickly follow.

    1. Too right, and we should send immigrants back home. Lets start with people who have immigrated to Auckland from Gisborne eh Geoff? Off you go…

      1. Why do you assume that is a reactionary statement? Even the Deputy Governor of the Reserve Bank is questioning immigration. We accepted more people to replace the 34,000 per year that were leaving. Now they are not leaving and we are still ‘replacing’ them. FFS it is the easiest most direct way to influence house prices. Remember supply and demand don’t work separately, they are the two blades of the scissors that define price.

        1. I would agree if the trend of people not leaving were to continue in the long term, I’m not sure it will however, and knowing how governments work a changed immigration policy would kick in just as the number of people leaving picked up again.

        1. Ha ha, shut down the truth, yes the great conspiracy to silence your sacred knowledge.

          Really I’m just laughing at an immigrant complaining about immigrants.

      2. “What’s wrong with property investment?”

        Greed. Putting the rent up from $300 to $350, then $400, then $450, then $500 in a relatively short timeframe, simply because “that’s the market price”. They don’t have to, but they do. They are in it to make money, not give struggling families a home with their needs in mind.

        The higher prices are out of reach of many kiwis, but still within reasonable bounds to a lot of the richer immigrants. As I’ve written before, the housing development down the road from me has had every single house pre-purchased by a chinese company, and they are onselling or renting to chinese immigrants (they are even being advertised in China) at prices they can afford, but many kiwis can’t.

        What is happening is tragic, and the government is essentially committing treason by allowing it. The worst bit is that in front of those new chinese-owned homes each night are parked cars, with young kiwis sleeping in them.

        It pisses me off when people try to hide or downplay this truth, and I for one won’t be quiet about it.

        1. Property investors should charge market rents as like any investor they take the good with the bad, such as landlords in Christchurch who are having to reduce prices and offer incentives due to over supply. The problem you are describing is a result of under supply in that the market has failed, this is what is needed to be solved, through removing bottlenecks to building or if need be a state funded building programme, rather than just punish a particular class of investor you don’t like.

          Agree though, we should be restricting foreign ownership of land, there is no reason not to.

        2. As Stu demonstrates in this post, the *primary* way that people make money out of the property market, far exceeding everything else, is capital gains arising due to a restricted supply of housing. So perhaps you should direct your ire at people who argue that we should restrain housing development in Auckland, rather than looking for scapegoats with the “wrong” skin colour or accent.

    2. What’s wrong with property investment? There will always be property investors, as we will never have 100 % home ownership, as there will always be students, young professionals flatting, people who move frequently for work, and just people that prefer not to have the hassle of home ownership.

      The problem at the moment is that it is too easy to make quick capital gains, and the causes of this are numerous, an attack on investors is unlikely to be a solution with good long term consequences.

      As for reducing immigration, there are risks with this as well, especially in terms of reducing the inflow of generally younger taxpayers in an ageing population, which is already facing issues with how to fund the pension in the future.

    3. +1 Geoff.
      Between foreign investors and new immigrants that is the entire shortage of houses in Auckland…and then some!
      At the very least a ban on foreign ownership is needed as this does nothing to help our economy.
      The government is using mass immigration as a tool to hide the under performance of the economy on their watch.
      Without mass immigration our GDP growth would be less than 1% pa.
      “GDP growth is great” from many quarters. Yes when it is GDP growth per capita. However this immigration GDP growth is pretty much a one time thing and does next to nothing (could be argued it actually damages) for GDP per capita growth.
      By making housing unaffordable it stops younger NZers in particular from owning a house and building up their own equity. That means down the track it is harder for some of those same people to use their house equity to set up a business and you know…generate income and jobs (potentially exports).
      It also drains far too much money out of peoples pockets so that other parts of the economy suffer due to less discretionary spend available. On top of all that by driving up the prices of houses it requires ever larger sums of money to be borrowed (most bank borrowing is sourced offshore). Because this comes from offshore it means that the NZ$ is being bought up. As a result our dollar is higher than it should be which makes our exports un-competitive further reducing our GDP growth in a vicious circle.

      1. There is a huge difference between foreign investors/speculators and immigrants. The former should certainly be regulated, as they are in most countries, including Aus, the later absolutely do add to the economy and the culture, and, after all, are who we all are…
        Which is also not to say that it should be unregulated, and of course it is!

        1. “There is a huge difference between foreign investors/speculators and immigrants”

          They are very intertwined though. We have entire housing developments being purchased by chinese investment companies (and in some cases being built by them), then selling them not in NZ, but in China itself. New Zealanders don’t even get a look in.

          Why should we be allowing that? Especially when it’s New Zealanders who have to pay for the infrastructure upgrades? It’s essentially a chinese resettlement programme that has nothing to do with legitimate housing requirements of Auckland, but it’s very much having an effect on those legitimate requirements.

          We’ve ended up with a system that spits out kiwis at the other end.

          Have you applied for your $5,000 to leave Auckland yet? That’s the government’s awesome solution.

          1. Chinese Resettlement Programme – Evil
            Wakefield Settlements – All good, no All Blacks without it

            Kiwifruit is a Chinese immigrant called Gooseberries do they have to go back to

          2. @Patrick some level of immigration is good (skilled, easily integrated, less likely to only settle in Auckland, needed category, etc). Letting in hundreds of thousands to have a net rate of over 60,000 pa over years is not. This is especially true when it comes on top of existing large levels of immigration to the point where housing prices were already high. As mentioned half of all immigrants settle in Auckland which is precisely the place we don’t need more people right now. As you know I have a particular issue with Chinese immigration in that it completely dominates all other immigration and does so for the most part in a “not to benefit NZ inc” way. It is not sustainable growth for our country and serves purely to benefit China (aka John Key/Nationals puppet masters… Former National PM Shipley…cushy job Chinese bank. Former Nat Leader Brash… Cushy job Chinese Bank. Up and coming but hopefully not Crusher Collins hubby… Cushy job with Chinese firm with her ear… The list goes on – traitors).

            @Harriet because the Chinese have never copied or ripped anyone off ever….
            And yeah Kiwi ingenuity turning a rather plain fruit that didn’t have much use into something much better (not that it was stolen…sold fair and square). Wouldn’t have happened otherwise so all good on that count. Besides the Chinese then stole that as they are good at doing and copied it and now make their own kiwifruit.

  15. Some people will be winners and some people will be losers

    Rezone land means more supply, which devalues dwelling values in general.

    On the other hand, land become develop-able, which increase the land capital value.

    The win win is people who got a large land with small property that get rezoned.

    The breakeven is the people who has medium land will has property value dropped but counter by increase in land value.

    The loser is people who got nice house on small land. Their dwelling devalues as supply increase, and their land is not developable.

    The people who owns no property will enjoy lower rent and lower house price due to increase in supply.

  16. Is a good point the double standards on immigration, why is it ok for someone from Napier to move to Auckland and not China, because some bloke in 1840 drew some lines on a piece of paper. Should Kiwi’s who left for Australia be allowed to return, the immigrants moved here in the mining boom times when we had a brain drain, why should those people be punished not those Kiwi’s traitors :P. It’s like that article about the poor IMMIGRANT UK family who might have apartments next to them. Do you think the Herald would have wrote that story if they were non-anglo’s. I can imagine the comment boards on stuff “Go Home” “Stop taking our jobs” etc. yet this family oh poor them. I’m an immigrant from the UK and Australia, no one questions my right to be here, but my partner born in South Auckland is always questioned, why because she is Asian.

    Also don’t see any Kiwi’s going yeah Auckland wouldn’t be crowded if we didn’t come here in the 1800s let go back to England lol, nearly everyone in this country is descended from an immigrant.

      1. Except for, you know, New Zealand’s aboriginal inhabitants, the Māori people.

        By your logic everyone whose family has left Olduvai Gorge at some point in the last 2 million years is descended from immigrants.

        1. indigenous: originating or occurring naturally in a particular place; native.
          aboriginal: inhabiting or existing in a land from the earliest times or from before the arrival of colonists;.

          Maori are, by their own history, indigenous or native, but not aboriginal.
          There are Welsh people who are aboriginal with identified genetic linkages to local remains more than 30,000 years old, and there are Australians and Africans who are aboriginal, there are not New Zealanders.

          My (supposedly) traceable English ancestry goes back further than the Maori occupation of New Zealand, and when they left, my ancestors still weren’t aboriginal.

          1. +1
            Maori like to think of themselves as being aboriginal like in Australia when in reality the aboriginal people in Australia were there long before Maori ancestors had even made it to many of the various islands they colonised along their way before their final stepping stone in Rarotonga which they left to colonise NZ around 1000 years ago.

          2. Relevant though? No one in power has ever suggested, let alone asked Maori to make immigration desicions.

          3. “aboriginal: inhabiting or existing in a land from the earliest times or from before the arrival of colonists”

            That perfectly describes Maori.

          4. Maybe so Sailor Boy but everyone in this country has descended from someone who emigrated here. What does the price of housing in Auckland in 2016 has to do with the definition of aboriginal?

          5. @sailor Boy Nope. The Maori WERE colonists. Arrival fairly conclusively dated to circa 1280CE around Otago along with the kiore and kuri. Those details are confirmed by both Maori genealogical histories and physical evidence.

          6. This does seem to be simply about how these terms are defined – which though a digression from the original points in this essay is an interesting reflection of things that are related to it. If you tie it back to the original comment prior to the definition debate and then look at that definition debate in a wider context you can see it reflects quite clearly how difficult it is to legislate “solutions” to this issue. For a start to legislate you need words and by context definitions and it is quite clear these are not always set as you can see by this thread they are interpreted differently by different people (who read different dictionary’s, literature, have trained in different areas and come from different cultures, genders etc etc). So when we come to say “we should make a law to stop XX from coming to NZ to make house prices more expensive” what one person means by XX (in the context of this discussion at the start of the comment chain I think that was who constitutes an immigrant) is different to what someone else means. Of course ultimately the law (when tested out) is only going to take one definition which may indeed have some unintended consequences to those who voted/pushed for that law to be put into place in the first place as they may have taken a different interpretation of it.

          7. Also people are not labels they are people and it is dangerous to reduce someone to a definition and that goes for labelling it there are “homeowners” and “non-homeowners” too – these are not two separate homogeneous populations and I am sure for example a young(ish) couple with perhaps 1 child who are in debt to the hilt and brought a house say a year ago and are really pushing limits to pay that debt will be rather disheartened to read some of the “homeowners” description of them in here.
            However the fact that this post and many other blogs, cartoons and commentaries I have read recently have expressed the “its them or us” and such-like sentiment means the issue has got to the point – well beyond the point where a huge amount of anger, frustration and rage is building up.

        2. Olduvai? The entities leaving there were HOMINIDS, not homo sapiens, and in fact the DNA histories indicate that they were merely returning to the Europe their ancestors had already returned to Africa from in turn.

    1. @Harriet because someone from Napier is already a citizen of this country. Just because the Chinese have f**ked up their own country with too many people/pollution etc etc doesn’t mean we need to let them all come here and do the same. You say you’re an immigrant yourself from the UK. Well if you’re going to be a whinging Pom feel free to go back there. Most Brits I know fit in quite well here and make positive contributions to this country.

  17. In 1981 I purchased my home in Mt Albert, a do-up villa, badly in need of some tender loving care. It cost me a small fortune back then, $50,000, and to be able to afford it I had to spend 13 years in Tokoroa, purchasing a home there, paying it off, and using the money from the sale as a deposit for my home in Mt Albert – incidentally my son did the same thing recently, purchasing a home in Te Awamutu, living there and paying it off and then using the money from that sale as a deposit to purchase a home in Auckland. Since then the value of my home in Mt Albert has gone up to about $1.5 million, about $45,312 a year. I did not ask for that to happen, and other than working on my villa and making it more habitable, did nothing to encourage that increase in value. So why on earth should I be taxed for that increase in value. If I sold up I would only have to spend a similar amount on another property, because I love it here in Auckland.

      1. So if you own a car, you should be taxed on the income that you could generate if you were to rent it out at say $50 a day?

        1. In theory but not worth it for cars. Housing is worth it due to sums involved and regressive distortionary effects.

    1. When I left high school, other than getting a degree and work experience, I did nothing to encourage the increase in my wages. Why on earth should I be taxed for the increase in my wages?

      1. Not a very good analogy… you’re being taxed on your actual income that you realise, which is now higher than it used to be. To make the analogy fit, you’d have to be taxed on the difference between your potential income now and then, whether you’re actually working (and realising that income) or not.

    2. Hi evan – note that I’m not necessarily arguing for a tax on capital gains. Im arguing for more houses to be built so capital gains do not materialize!

    3. You should be taxed because as you describe, you did nothing to increase the value. Society caused the increase and so society should get some benefit (remember you still get the majority).

  18. It’s funny.
    3 years ago, we paid ~520K for our property, about half of which was land value.
    Now we’re probably looking at say 900K
    But the SUM INSURED replacement value (which included a demolition/clearance allowance of 100K) was ~600K
    So now the value of our property is approximately the same as it would be for a new build, at least until the land value gets reappraised.

  19. My land is worth heaps – it is a full sized section which at some stage in the future could easily take three or four apartments, if it is not bowled for a St Lukes railway station that gets mentioned from time to time. But the thing is, I am well and truly settled here and have no intention of moving in the near future, nor do i intend to realise the value with new bank loans raised against the property. So to me the value of the property is immaterial, other than providing the council with a figure with which to set my rates, and give me a topic to grumble about.

  20. Here’s policy….

    Take $8 billion (you know….the RONS budget) and set up an SOE to build affordable apartments for rent. Thousands of them. Do NOT sell the apartments. Make a modest return across 30 years sufficient for capital expense recovery (cost of building), maintenance and to build more.

    If we can build roads for truckers we can build homes for……..people.

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