There’s no question that New Zealand’s house prices are out of whack with our income levels (even taking into account the declines from the 2022 sugar rush), especially for young people starting out in the workforce. According to my kids it’s one of the main gripes at their parties. It’s not just that mortgages are crushing for the classic single-income earner (even before the Robertson/Orr interest rate stuffup), they’re crushing for the now standard double-income family. I’m aware of people in their twenties who have set up legal arrangements where, instead of flatting together, there’s joint ownership of a house, the plan being that they’ll sell up and move on to their own lodgings.

There are a lot of reasons for this, most of which have been well covered over the years by architect (and Objectivist) Peter Creswell at his Not PC blog on housing. A brief, high-level summary of his reasons:

  1. Extremely constraining land use rules by city councils that encourage land-banking and artificially increase the cost of existing, developed land. Looking at my rates over the years there’s no question this is the Number One problem in NZ.
  2. The cost of building houses as a result of overly prescriptive building codes.
  3. The cost of building houses as a result of the lack of competition for building supplies. Anybody who has ever compared the price of a pack of building screws between an Ace Hardware store in Chicago and Mitre10 here will know about this.

One thing Peter does not mention, because he’s an Open Borders fanatic who hates even the concept of “illegal” immigration, is that our immigration numbers have swamped the existing housing industry. Fixing the problems above would likely make that problem go away (mostly), but in the current status quo it’s like pouring petrol on a fire.

However, on the Left wing of our political spectrum little or none of this is ever mentioned. Instead the focus is on implementing a Capital Gains Tax to fix the problem, which is that Kiwis invest in houses instead of businesses.

Leaving aside the fact that history suggests that investing in businesses in NZ is not a great prospect (and I’m not just talking about the 1987 sharemarket crash) and that even if housing gains have been oversold they’re still safer than NZ businesses, there is no surety that a CGT would shift investment in this more productive direction. After all, there would be no relative change from the status quo of no CGT on housing or business investments to having a CGT apply equally to all.

And of course we have had a type of CGT applying only to houses for some time now; the so-called “bright-line” test where the gains made in the sale of a house you own is counted as income depending on how much time has passed between your purchase and sale. That time started, IIRC, at ten years when the Key government introduced it, dropped to two years under Labour and is now back to ten? (readers advice welcomed).

There’s no evidence that it’s done a damned thing to shift Kiwis away from investing in housing to investing in businesses.

Mind you, that’s not the aim of the Left; for them such arguments are mere cover for the eternal goal of simply sticking to anybody with money and re-distributing it in various ways to those without. In fact even if the latter is poorly done, as was the case with Labour 2017-2023, they still don’t give much of a shit as long as the rich are getting screwed by their beloved State.

Meantime, the argument that other nations have CGT regimes and we should copy them – you’ll notice that the argument about how great it is for NZ to take the lead and show the world a different path, as with nuclear weapons and Climate Change responses, is not applied in this case – is being steadily destroyed by evidence such as this from Britain:

As well as this news from the USA, which long led the Western world in providing affordable housing for young married couples starting a family, from none other than VP Vance:

I have to say, I’m hard-pressed to think of a time in my 40 years of life when it’s been so hard for normal American citizens to afford a home. Even renting a home has become a challenge. Or worse yet, fallen completely out of reach for so many of our families. I was talking with a relative a couple of years ago, and she made just an off-handed kind of observation. A younger person than I am, she was looking to buy her first home and just mentioned that when her parents were growing up they could afford a nice home on a single middle-class income. She was sort of mentioning this as a sorrowful thing. It’s sad that this wasn’t true for her generation. And I think all of us in this room certainly including me, have a little bit more work to do to make housing a little more affordable. 

I want to talk about that because I think it’s the issue where our interests are most aligned, in some ways, with the people in this room. I read recently where the average income it takes to buy a new house is nearly two times the average salary of your typical American family. Not the average American worker, but the combined incomes of a husband and wife. And that’s just not acceptable or sustainable. 

Maybe they should increase their CGT rates?