Archive | Labour policy

Ardern follows well researched overseas thinking on rentals, some responses over-edgy, and 5-year-old Ahuri research is helpful clarification

Jacinda Ardern in her policy broadcast yesterday.

Labour leader Jacinda Ardern announced a set of new terms for residential tenancies yesterday, and was immediately – and predictably – told this would badly affect landlords and would have the opposite effect on New Zealand’s housing crisis to that she intended.

The Labour policy is along the lines of what is the norm in Germany, where tenants enjoy long-term occupancy, and also follows the thinking of AHURI – the Australian Housing & Urban Research Institute – in a paper written 5 years ago, How can secure occupancy in rental housing be improved in Australia?

Below: First the Labour policy, then some adverse comments, followed by the AHURI view.

A quick note: I’d thought of paying more attention than I usually do to election policy announcements, then thought better of it. For starters, I have more than enough to write about already. Second, a high proportion of wishlist & splurge electioneering has been vote-buying which can mostly be dismissed – or, if it does eventuate, watched extra-critically. This one, though, is a policy which will affect a large investor sector. If it follows the AHURI line of thinking it ought to be beneficial all round.

A family constantly on the move

To deliver her policy, Ms Ardern said down with a family who’d moved 4 times in 3 years, whose children had to move schools, and whose attempts to save to buy their own home had been set back.

“About 50% of Kiwis now rent their home, but too often their living situation is precarious,” Ms Ardern said.

Her promise: “A Labour Government will strengthen renters’ rights so everyone can have more stability. Not only will Labour increase the notice period for ending a tenancy, we’ll also end letting fees, limit rent increases to one/year, make all homes warm, dry & safe to live in, and much more.

“And for landlords who need to move on tenants who are breaching their agreement, we’ll make sure the tenancy tribunal is properly resourced, and that issues like anti-social behaviour are much clearer in the law.

“It’s about making renting fairer & more stable for both tenants & landlords – and is part of our comprehensive plan to fix the housing crisis.”

Policy: Making life better for renters

“For most people, renting used to be a short stage of their life before they bought a house and started a family. Now, it is becoming the norm. 3 out of 4 people under 40 years old rent, compared to one in 2 in 1991. Among older New Zealanders, the home ownership rate has fallen from over 90% in 1991 to 75% today. All up, half of New Zealanders now live in rental properties.”

Ms Ardern said renters’ rights were still designed around the assumption renting is a short-term arrangement for people without children and that renters will move frequently, rather than set down roots in their community.

The policy:

  • Increase 42-day notice periods for landlords to 90 days to give tenants more time to find somewhere else to live
  • Abolish “no-cause” terminations of tenancies
  • Retain the ability of landlords to get rid of tenants who are in breach of the tenancy agreement with 90 days’ notice, or more quickly by order of the Tenancy Tribunal
  • Limit rent increases to once/year (the law currently limits it to once every 6 months) and require the formula for rental increases to be specified in the rental agreement
  • Give tenants & landlords the ability to agree tenants on a fixed-term lease of 12 months or more can make minor alterations, like putting up shelves, if they pay double bond and on the basis the property is returned to the state it was in at the start of the tenancy
  • Ban letting fees
  • Require all rentals to be warm, dry & healthy for families to live in by passing the Healthy Homes Bill, introduced as a members’ bill by Ms Ardern’s predecessor as Labour leader, Andrew Little, and in the committee stage when the parliamentary term ended in August, and
  • Give landlords access to grants of up to $2000 for upgrading insulation & heating.

Notice periods

Ms Ardern said notice periods would be used where a landlord required the home to live in or had sold the property, the tenant had breached the agreement such as anti-social behaviour, failure to pay rent or causing damage to the property; or the landlord didn’t want to continue a fixed-term tenancy past its expiry: “This will mean landlords are still able to give notice to evict bad tenants. Landlords will still be able to go to the Tenancy Tribunal to ask for evictions or other remedies in the event of breaches of tenancy agreements.

“Most landlords operate with integrity and seek to provide decent accommodation at a fair price. These reforms will not affect them. What they will do is stop exploitative behaviour by a minority that is blemishing the reputation of landlords as a whole.”

Property Institute: It will worsen housing crisis

Ashley Church.

Property Institute chief executive Ashley Church said: “Labour’s new housing rental policies will scare existing landlords out of the rental market and will make the current housing crisis even worse – particularly in Auckland.

“The timing of these proposals couldn’t be worse. Auckland is currently in the grip of a serious housing shortage which affects both buyers & renters – and anything which deters investors from providing housing can only succeed in compounding that problem.

“If you’re an existing landlord, the deck is already stacked against you. The market has flattened, loan:value ratio (LVR) restrictions mean your equity position is worse, and bank credit rationing means that it’s now much harder for you to borrow money to do renovations & improve your position.

“Now Labour is telling you that, if elected, they’ll take away your right to terminate a tenancy and they’ll regulate the circumstances under which you can increase rents to make them comply with some as-yet-undefined Big Brother formula.”

Mr Church said these moves would come on top of a capital gains tax, pending a report from a yet-to-be-formed tax working group: “It doesn’t take a rocket scientist to recognise that Labour are already committed to a capital gains tax and that their tax working party will be made up of others who share that worldview. So, if you’re a property investor, the very clear message is ‘We’re going to get you’.

“That might make for good politics – but it risks doing long-term damage to the property market by scaring off mum & dad investors who are currently putting a roof over people’s heads.”

Mr Church said private investment was the key to solving the housing crisis and providing incentives to get people building new homes was the way to overcome the supply issue: “But no one is going to do that if they’re worried that they’re going to be regulated & taxed to death. Existing landlords will abandon the market and people who might otherwise have invested will stay away. Which means the State – which is just you & I as taxpayers – will be left holding the bag.”

First National chief also makes lopsided call

Bob Brereton.

First National Real Estate chief executive Bob Brereton said Labour’s proposals to change tenants’ rights “will severely, and negatively, impact on a landlord’s ability to protect their investment and will result in increased rents for tenants.

“The pledge to outlaw letting fees is a good example of a poorly thought-out policy with an unintended consequence: Letting fees are charged by professional property management companies to cover the costs associated with securing the right tenant. They then act as advocates for both the landlord & tenant to ensure comfort, safety & protection of the investment. If you remove letting fees, many management companies will be forced to increase management fees to compensate. This will simply force up rents.”

He was also concerned about the proposal to remove the right to end a tenancy, with 90 days’ notice, without cause: “This is simply ludicrous. There are many reasons why landlords might want vacant possession of a property, and infringing on these is a direct challenge to private property rights.

“A similar proposal to increase the provision to end a tenancy after 42 days, in certain circumstances, to 90 days will have a significant impact on property values. The 42-day provision is used, particularly, when a landlord sells a property and the buyer requires vacant possession or where the landlord needs to move back into it urgently, so this provision could impact on a landlord’s ability to sell.”

Brereton says regulating rent rises a no-no

Mr Brereton said one of the biggest challenge of Labour’s policy was the proposal to regulate market rentals by passing legislation to cap the amount by which rent can be increased. His example:

“A landlord buys a house, putting up say $200,000 of their own cash or equity, to provide a home for someone without one. They borrow $450,000 for the purchase at 5% interest and, paying only interest, it costs them $22,500 in interest, another $2000 for rates and $1500 for insurance ($26,000/year). This means they have to rent the property for $500/week, just to cover costs. Add in a 5% return on their equity and its $692. Anything less than that and you are just providing social housing.”

Overall, he said: “This risks being ‘the straw that breaks the camel’s back’. Landlords are facing negative returns, flat prices & the threat of a capital gains tax. If interest rates go up, as predicted, it would only take a small move in a flat market to convince many landlords to get out of the market.”

Australian research indicates similar issues left to fester

AHURI – the Australian Housing & Urban Research Institute – introduced a paper published in May 2012 this way: “More Australians are renting for longer periods, yet do not enjoy the benefits of secure occupancy. Changes to improve the security of occupancy in the Australian private rental system can be informed by international experiences.”

The paper was based on research conducted by Professor Kath Hulse at the AHURI Swinburne-Monash Research Centre, and Associate Professor Vivienne Milligan & Dr Hazel Easthope at the AHURI UNSW-UWS Research Centre. They examined the provisions for secure occupancy across rental systems in Australia & other similarly developed countries, and considered the potential to adapt these provisions to Australia.

Key points:

  • Secure occupancy is important in creating a home, regardless of tenure, and is a foundation for many aspects of wellbeing
  • The Australian private rental sector is characterised by relatively insecure occupancy compared to either social rental or home ownership
  • International experience demonstrates that it is possible to have a large private rental sector with smallscale investors & higher levels of secure occupancy for tenants. Changes to the regulatory framework and policy settings are required to achieve this.

This study argued that secure occupancy is linked to whether households are able to:

  • participate effectively in rental markets
  • access & remain in adequate, affordable & appropriate housing with protection of their rights as consumers & citizens
  • receive support from governments or other social service agencies if & when necessary to obtain &/or sustain a tenancy
  • exercise a degree of control over their housing circumstances and make a home, to the extent that they wish to do so.

European examples

Provisions for secure occupancy are stronger where rental systems are large, such as in Germany, the Netherlands & Austria, where, respectively, 60%, 43% & 30% of households rent. All of these might be categorised as integrated systems, with more uniform policy & regulatory approaches to rental housing.

While the latter 2 prioritise the social rental sector, the German system relies mainly on a private rental system. In these countries, secure occupancy in rental housing has been supported by supply subsidies. By contrast, other jurisdictions (Scotland, Flanders, Ontario, New Jersey & Australia) tend to have highly differentiated systems with strong security in social housing and relatively insecure occupancy in the private rental sector.

Largescale investment & professional management

Countries with large social renting sectors (the Netherlands, Austria, Scotland & Ireland) or higher corporate/institutional investment (Austria, the Netherlands, New Jersey, Ontario & Germany) also have a stronger tradition of professionalised management than in Australia.

This enables investor risks to be pooled and decisions about occupancy for individual households to be made at arm’s-length from decisions about investment.

Germany provides an interesting example, where, although there is larger-scale investment, most landlords are smallscale but are investing for the longer term, enabling more secure occupancy for tenants.

Legal provisions for secure tenure

There is a range of lease types across the countries studied. The typical practice in Australia of offering short-term fixed leases followed by month-to-month arrangements was only found elsewhere in Scotland & Ontario. New Jersey also has month-to-month arrangements, though these renew automatically unless a notice to terminate is given by either party. Other countries have the practice of longer-term or unlimited lease terms.

Of the jurisdictions studied, only Scotland compares with Australia in terms of having short-term tenancies that can be terminated readily without grounds. Even jurisdictions like Ontario & New Jersey have specified grounds for ending a private sector tenancy.

Supporting lease terms that meet the long-term needs of householders

Some jurisdictions have also been better at assisting people to personalise their dwelling and use the property according to their wishes, and so improve their autonomy. In the German private rental market, the standard lease provides capacity to personalise or even renovate the house and facilitates access to people with disabilities. These are only found in other jurisdictions on a lease-by-lease basis.

Links: Labour policy: renters
Ahuri, 14 May 2012: How can secure occupancy in rental housing be improved in Australia?

Attribution: Labour policy & release, Property Institute & First National releases, AHURI research paper.

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National promise of 34,000 houses/decade for Auckland may add 2000/year

The headline is what matters in an election campaign, and the headline is that National is promising that, as the government, it will build 34,000 new houses on Crown land in Auckland over the next 10 years.

New Zealand has a record of not electing governments beyond 3 terms and National is ending its third term as the majority in a coalition, which jeopardises the chances of it being in a position to carry out the promise.

Social Housing Minister Amy Adams.

Amy Adams, Social Housing Minister and Minister Responsible for Housing NZ, revealed the figure in a speech at the Property Institute in Auckland yesterday. And then she proceeded to whittle it down.

The 34,000 is made up of 13,500 new social houses & 20,600 affordable & market homes.

Under the Crown Building Project, the Government will take down 8300 old, rundown houses.

Ms Adams said Housing NZ alone had over 50 housing developments under way in Auckland. The forward programme includes other housing projects already announced & underway:

  • Northcote, where 300 state houses will be replaced by 1200 new homes
  • Hobsonville Point, where the Government-owned Hobsonville Land Co Ltd (now HLC (2017) Ltd) is about to deliver the 1000th house in a programme to deliver 4500 homes
  • Tamaki, where the government-council regeneration project has a programme to develop 7500 new homes over the next 15 years, replacing the houses on 2800 Housing NZ properties
  • Other existing projects include 2700 new homes already announced under the Crown land programme, 580 houses under the Ministry of Social Development’s social housing reform programmes, and new homes for emergency & transitional housing.

By Ms Adams’ calculation, the Government would add 24,000 new – not previously announced – houses over a decade, though on the figures above the actual total might be less, perhaps down at 20,000, or an average 2000/year.

Comparing promises

Andrew Little.

That compares with Labour leader Andrew Little’s proposal last year for 100,000 new affordable houses nationally over 10 years, half of them in Auckland, which would include partnerships with private developers.

So, on top of existing projects, Labour has promised 5000 and National 2400 extra houses/year for Auckland.

Labour also promoted a dole for apprenticeships policy which would subsidise employers to take on around 4000 young people for on-the-job training in fields including building & construction.

Phase one of National’s Auckland housing programme, which covers the next 4 years, would cost $2.23 billion and be funded through Housing NZ’s balance sheet and $1.1 billion of new borrowing that the Government has approved as part of the business case.

Phase 2 in the latter years would be funded through the market housing development part of the programme & rental returns.

Ms Adams said ministers had also agreed that Housing NZ would retain dividends & proceeds from state house transfers, to help fund the building programme.

A glance at reality

The promises come after a period of extremely high immigration – a net inflow of 228,000 nationally over the last 4 years, 108,000 of those in Auckland, requiring 40,000 homes at an average 2.7 persons/household.

Building consents in Auckland over those 4 years started low, 6500 for the March 2014 year as the country was still gradually easing out of the global financial crisis, and totalled 34,200 for the 4 years.

Assuming 100% construction of consented homes (which is not normal, but I don’t have the exact figure), Auckland fell short of housing the net migrant inflow by almost 6000 homes over those 4 years. That housing requirement ignores, completely, the net flow of people within the country.

The National proposal might fill the gap if immigration eases, but on the slim information from the minister it would encourage pricing to stay high. On my calculation in February, consents for new homes nationally (excluding land) have risen 34% in value over the last 5 years – after a slow shift from the bottom of the market, between 6-7.7%/year for the last 4 years.

The land price equation in Auckland can be partly met by intensification throughout suburbia, land prices falling because of the freer availability of sites under the new unitary plan, and section sizes being reduced.

That doesn’t require tampering with rural:urban boundaries, which Labour has said it will eliminate. Those boundaries have a role in protecting non-urban land and in directing development into more efficient parcels.

Auckland also needs more infrastructure for housing development, but it needs to be in well devised communities with a supply of jobs nearby, not on the basis of rural carpetlaying. The local job requirement is fundamental but has been ignored as Auckland has spilled out along motorway corridors.

To catch up, New Zealand needs more builders with a longer future in the trade than the typical construction cycle allows. To do that, either the Government or some other industry supporter needs to ensure trade skills are being taught to enough people before a boom gets underway, and it makes sense to reduce booms, and therefore busts, with some smoothing of economic cycles (but not the total smoothing the US tragically & farcically tried in its attempt to avoid what became the global financial crisis).

As a cyclical high recedes, the building force needs attractive alternatives other than leaving for Australia. Some of that can come through infrastructure projects, which ideally should be separated in time from highs in house & commercial construction, thus reducing cost pressures as well.

Full Adams speech, 16 May 2017: Launch of Crown Building Project

Earlier stories:
16 May 2017: Little calls for end to negative gearing, and Property Institute calls it “cynical ploy”
6 March 2017: Auckland above 10,000 home consents/year again
10 February 2017: Smith exultant about figures that are plainly inflated
19 January 2017: Building consent highs still don’t match migrant demand
11 July 2016: Little sets out 8 planks to remedy housing issues
19 November 2012: Shearer proposes Government scheme to build 100,000 “entry-level” houses over 10 years

Attribution: Ministerial speechnotes & release, Statistics NZ tables, Labour releases, own articles.

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Little calls for end to negative gearing, and Property Institute calls it “cynical ploy”

Labour Party leader Andrew Little renewed the party’s call to eliminate negative gearing on residential property investments yesterday, and was promptly accused by Property Institute chief executive Ashley Church of making “a cynical electoral ploy [that] risks making the country’s housing crisis significantly worse”.

The party campaigned to end negative gearing in 2011. This time, Mr Little proposed reducing negative gearing by 20%/year over 5 years and spending the estimated $150 million saved on $2000 grants to 600,000 homeowners to insulate their homes.

Mr Little’s call was to “crack down on speculators”, which included banning foreign speculators from buying existing homes: “This will remove from the market foreign speculators who are pushing prices out of reach of first-homebuyers.”

He said Labour would tax property speculators who flick houses within 5 years, and end their ability to use tax losses on their rental properties to offset their tax on other income, “which gives them an unfair advantage over people looking to buy their first home”.

Expanding his point, Mr Little said: “Homebuyers are being locked out of the market by speculators. Losses from rental property investments will be ring-fenced. Speculators will no longer be able to use tax losses on their rental properties to offset their tax on other income, a practice called negative gearing. This move has been recommended by the IMF & the Reserve Bank.

“The biggest users of this loophole are largescale speculators who own multiple rentals and use losses on new acquisitions to continually reduce their tax. The speculators’ tax loophole helps them outbid homebuyers for properties because the taxpayer effectively subsidises part of their cost of servicing mortgages.

“Ending this loophole will not affect most people who have bought a single rental as a long-term investment because most of them are not using it. Those [small investors] that do use this loophole generally only do so for a few years after purchase.”

Church calls it envy politics

Mr Church said the suite of housing proposals Labour announced last year was smart, but on this one he accused the party of “resorting to a form of envy politics designed to set one section of New Zealand society off against another. The policy is a direct attack on mums & dads who are trying to provide for themselves in retirement and be less of a burden on the state.

“Mr Little’s use of the word ‘speculators’ to describe property investors is mischievous. Speculators are people who buy & sell property very quickly in the hope of making a quick buck – whereas investors are people who buy for the long haul – providing housing to thousands of New Zealanders in the process.”

Mr Church said the policy, if implemented, would have a dramatic & rapid effect on the supply of private rental accommodation, creating a problem which would ultimately fall back on the Government: “Your typical property investors are average mums & dads – not wealthy cigar-smoking fat cats – and their ability to purchase an investment property is usually leveraged against the equity in their home & their ability to claim losses in the early years, like any other business does. This move would certainly stop them investing – but in the process it would quickly lead to a shortage in rental housing which would fall back on the Government – so it would end up costing the taxpayer a lot more in the long run”.

Mr Church noted that negative gearing is only a factor in the early years of a property investment: “Over time, rents rise and properties become ‘positively geared’ – at which point the additional income becomes taxable. Is Labour suggesting that they will forgo this tax income – or that they’ll make property investors pay tax on profits while removing the ability to claim losses?”

Need is “to harness family investment”, not to discourage it

He said his biggest concern was that Labour was proposing a policy to reduce private investment in property at a time when private investment in new houses “is probably more important than at any other time in the nation’s history – the Government, and parties who want to be in government, should be proposing policies that increase private investment in the construction of new dwellings as quickly as possible – exactly the opposite of what Labour is proposing.

Instead, Mr Church said there was “a need for smart & innovative solutions that harness the power of mum & dad investment to get those houses built quickly. That might include giving preferential tax treatment to investors who build, or buy, new homes – not punishing them for doing so”.

And he questioned Mr Little’s level playing field: “That’s absolute nonsense. Homebuyers & families aren’t being closed out of the market by investors – they’re being closed out by loan:value restrictions that require them to have a 20% deposit at a time when house prices are at historically high levels. The best way to fix that is to remove those restrictions on first-homebuyers – not blame those who are providing rental accommodation to those who choose not to own.”

Labour plan includes big build, training programme & elimination of Auckland urban boundaries

Labour does have a development plan, announced last year, to get 100,000 houses built quickly under its KiwiBuild programme, which would include partnerships with private developers.

Mr Little said Labour would establish an affordable housing authority to work with the private sector to cut through red tape and get new homes built fast. “It will partner with private developers, councils & iwi to undertake major greenfields & revitalisation projects, building affordable homes with KiwiBuild & the private market [but the company names Kiwibuild Ltd & Ltd have already been registered by private company owners]. These homes will be part of great communities built around parks, shopping centres & transport links.

“Labour’s KiwiBuild programme will build 100,000 high quality, affordable homes over 10 years, with 50% of them in Auckland. Standalone houses in Auckland will cost $5-600,000, with apartments & townhouses under $500,000. Outside Auckland, houses will range from $3-500,000.

“Increased house-building will require a larger workforce. Labour’s dole for apprenticeships policy will subsidise employers to take on around 4000 young people for on-the-job training in fields including building & construction. Labour’s policy of 3 years’ free post-school education will see tens of thousands more people study in all fields, including building & construction. KiwiBuild is projected to create 5000 new jobs at its peak.

“Labour will remove the Auckland urban growth boundary and free up density controls. This will give Auckland more options to grow, as well as stopping landbankers profiteering & holding up development. New developments, both in Auckland & the rest of New Zealand, will be funded through innovative infrastructure bonds.”

Link: Labour policy, Levelling the playing field for first-homebuyers

Attribution: Party & institute releases.

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Little sets out 8 planks to remedy housing issues

Labour Party leader Andrew Little announced yesterday that Labour would, if elected next year, carry out 8 actions aimed at fixing the housing crisis.

They are:

  1. Build 100,000 affordable homes around the country
  2. Ban foreign speculators from buying existing homes
  3. Introduce an affordable housing authority, partnering with the private sector, to fast-track development in our cities
  4. Tax property speculators who flip houses within 5 years
  5. Help 5100 more Kiwis into emergency housing every year
  6. Make Housing NZ build more state houses & maintain them properly, rather than paying dividends & selling stock
  7. Require all rental homes to be warm, dry & safe to live in, and
  8. Abolish the urban growth boundary and allow Auckland to grow up & out.

Mr Little said: “The Kiwi dream of home ownership is slipping away and we’re facing the biggest housing crisis New Zealand has ever seen. This is a game-changing policy package to fix the housing crisis.

“Labour will establish an affordable housing authority to work with the private sector to cut through red tape and get new homes built fast. It will partner with private developers, councils & iwi to undertake major greenfields & revitalisation projects, building affordable homes with KiwiBuild & the private market. These homes will be part of great communities built around parks, shopping centres & transport links.”

The party would put all surplus urban Crown land under the control of the affordable housing authority for use in its development projects.

“Only a quarter of adults under 40 own their own home, compared to half in 1991. Too few houses are being built, which is helping to drive up prices beyond the reach of middle New Zealand, and too few of the houses that are built are affordably priced for new home buyers.

“In Auckland, despite more than 13,000 new houses being needed to keep up with population growth, just 9400 new houses were consented in the past year. The trend for new consents is falling when a dramatic increase is needed.

“The Government’s estimate that only 5% of new builds are priced in the lowest quartile means fewer than 500 affordable houses will be built in Auckland this year.

“There is no single body tasked with driving the construction of affordable homes. Most developments are smallscale & slowed down by long consenting periods. To ensure profitability, private developers focus on building large, expensive houses.

“At the same time, regional centres are crying out for redevelopment of rundown town centres & suburbs but there is no support from the Government to get this done.”

100,000 affordable homes

Mr Little said Labour’s KiwiBuild programme would build 100,000 high quality, affordable homes over 10 years, 50% of them in Auckland. Standalone houses in Auckland would cost $5-600,000, apartments & townhouses under $500,000. Outside Auckland, houses would range from $3-500,000.

Growing the building workforce

Increased house-building will require a larger workforce, but the Labour policy is aimed more widely than that: “Labour’s dole for apprenticeships policy will subsidise employers to take on around 4000 young people for on-the-job training in fields including building & construction. Labour’s policy of 3 years’ free post-school education will see tens of thousands more people study in all fields, including building & construction. KiwiBuild is projected to create 5000 new jobs at its peak.”

Remove barriers that are stopping Auckland growing up & out

“Up & out” has become a common cry, often without thought on what the “out” would achieve. The constraining urban boundaries were put in place to prevent sprawl into rural areas and to enable infrastructure to service new development most efficiently, and therefore more cheaply. Auckland’s old councils were at odds on urban growth – the outer councils were attracting more housing development but had trouble meeting the infrastructure programmes & costs, while the old Auckland City Council favoured intensification as a regional policy.

Mr Little said: “Labour will remove the Auckland urban growth boundary and free up density controls. This will give Auckland more options to grow, as well as stopping landbankers profiteering & holding up development. New developments, both in Auckland & the rest of New Zealand, will be funded through innovative infrastructure bonds.”

Crackdown on speculators

He said Labour would ban non-resident foreign buyers from buying existing New Zealand homes: “This will remove from the market foreign speculators who are pushing prices out of reach of first-homebuyers.”

Labour would extend the bright line test, requiring income tax to be paid on any gains from the sale of residential property, from the current 2 years to 5 years: “This will target speculators who buy houses with the aim of making a quick capital gain. Current exemptions from the bright line test will continue.”

Mr Little said Labour would consult on way to close the negative gearing loophole: “Negative gearing can be used by speculators to make taxpayers subsidise losses on their properties. This is effectively a subsidy for speculation.”

Focus Housing NZ on helping people, not making a profit

Labour will make Housing New Zealand into a public service rather than an SOE, and will substantially increase the number of state houses. Unlike the current government, Labour will not milk state housing for a dividend, and will end its programme of state house sales.

Establishing an affordable housing authority
Focus Housing NZ on helping people, not making a profit

Attribution: Party policy announcement.

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Goff shoots at farmers & residential investors as he reveals his vision

Published 23 May 2011

Labour Party leader Phil Goff made farmers a target yesterday, fired a shot at residential investors, talked up r&d and trade training, crossed the Puhoi-Wellsford “holiday highway” off the to-do list and scorned National’s notion that selling assets was good economics.

For a Labour leader, drive-by shooting of farmers is an easy sport: the party’s wage-earning & beneficiary bases are guaranteed to love it. Likewise canning the “holiday highway”.

Holding on to state assets will be supported by anyone who believes the public sector can perform just as well as the private if it’s managed properly.

Research & development has been a popular economic segment to support from time immemorial, but the money doesn’t flow, or does so only in fits & starts.

So Mr Goff will have secured some votes from his address to the Labour Party congress in Wellington yesterday. But he’ll also lose the votes of middle-income people who just happen to want to drive a short distance to their bach or to get away to a beach at the weekend, only to find themselves in an hours-long traffic jam.

And his shot at owners of rental investments will have an aftershock: These people paid no tax on those investments under a system which has been changed, but still needs to change further. The sector is priced wrongly, so drawing tax out of it will mean sharp adjustments to rents, for one thing.

Despite some blemishes, the Goff advocacy of a different economic way forward has some positives, though his real voter base is likely to pull those positives apart in the event that he wins power.

That’s an unlikely event, given National’s numbers in Parliament and polling which indicates Labour’s chances of a huge lift in support remain poor.

The question, then, is whether John Key needs to pay attention to the plank Mr Goff has laid out, to pick some good bits off it and thereby reduce Labour’s chances of winning support from the rest. Mr Key can win with what he’s put forward in last week’s Budget, even though it’s a lazy attempt at prudent management.

Below, I’ve taken excerpts from Mr Goff’s speech yesterday:

I want to focus on the huge task we face to pay back the debt and grow the economy so everyone gets ahead…. I don’t pretend that is going to be easy. We can’t simply wish away a deficit of $16.7 billion. That is National’s legacy. It’s real and it has got to come down.

But we won’t do that by selling out our future. We will be keeping not selling our farmland to foreign buyers. We will be keeping our power companies, Solid Energy & Air New Zealand community-owned & Kiwi-owned. Selling our efficient & financially successful assets is just dumb. It doesn’t improve our financial position. It actually worsens it. Our power companies alone paid back over $700 million last year to the taxpayer. No wonder foreign investors can’t wait to get their hands on them.

Selling them to pay off debt is economic stupidity. Once they’re sold, that source of money is gone forever. No business or individual would do it, and nor will we. It’s like selling the house to pay off the mortgage and then renting from a landlord who is going to keep pushing up the rent…. Contact Energy was sold by National in 1999. Since then $1 billion in profits from it has gone out of the country to foreign investors….

Muldoon destroyed the 1975 Superannuation Fund. The Key Government seems to want to do the same to KiwiSaver. Because they broke their word, hundreds of thousands of Kiwis stand to lose over $500/year in tax credits….

Things that we would like to do will have to wait until we rebuild the economy. Part of the solution will be axing projects & programmes that we don’t think are priorities to free up cash for more important areas. The Puhoi-Wellsford holiday highway and the missile system for our frigates are examples…..

The Tax Working Group set up by the Government pointed out that half of the top 100 earners in this country didn’t pay the top tax rate. They said that $200 billion in investment in rental properties returned no net tax to New Zealand. They stated that wealthy people using trusts or company structures treated taxation as if it were a voluntary exercise, and they weren’t volunteering. That has to stop. Labour will crack down on tax dodging.

A fairer & smarter tax system will help Labour fund its promise to provide some relief for low- & middle-income people who are struggling. The full 15% of gst will come off fresh fruit & vegetables. That will ease the pressure on household budgets. It will help families put healthy food on the table. And tax rates on the first $5000/year earnings, the first $100/week, will be tax free, as it is in Australia. That will be introduced progressively and our full taxation policy, when released, will set out precisely how it will be funded….

In our first year, Labour will increase the minimum wage to $15/hour to ensure that people who work for a living get a fair living wage….

We need to grow our economy. A growing economy is the best way to pay off our debt and pay for the services we need. Our goal must be to grow a high-skill, high-tech, high-wage economy. A small & distant country like New Zealand will not compete by trying to provide the world’s cheapest goods & services, but we can compete by being the best.

We need to focus on upskilling our labour force. The building & construction industry tells me that within 18 months we will have a shortfall in their industry alone of 90,000 skilled & semi-skilled workers.

There is Christchurch to rebuild, leaky homes to repair and growth of population in Auckland, where new houses haven’t kept up with growth in population. The need to upskill is a no-brainer when you have 155,000 Kiwis out of work while there is a huge shortage of skilled workers.

We also have to address the ticking time bomb we have with many of our young people out of work. There are now 77,000 young people under 25 who are unemployed. That’s one in 4 – one in 3 in the Maori & Pasifika community. We risk a lost generation. It is a social disaster waiting to happen.

Labour will make sure young people leaving school are either earning or learning. Labour will revitalise trade training & apprenticeships. We will create a modern equivalent of schemes like Maori trade training in the 60s & 70s. This produced a generation of skilled & confident young Maori workers.

It’s a disgrace that 9 months after the first earthquake, no new training schemes have been established and no new trainees have yet been taken on in Christchurch. And the money put aside for training is less than the amount which the Government cut from industry training schemes last year. Over 10,500 15-24-year-olds are currently unemployed in Canterbury. The numbers are still going up, but John Key talks about bringing in skilled workers from Malaysia & the Philippines.

Labour will be investing more in research & development. We have to build a smart economy, capable of innovation so that we can lead the world. Yesterday on this stage, New Zealander of the Year Paul Callaghan outlined 10 New Zealand companies which are leading the world, but we need 100 more like them. Labour brought in an r&d tax credit to promote this. We recognised that having r&d a third of the level of comparable countries wasn’t good enough. Our third-largest sector in the economy is hi-tech industries, which produce $6.5 billion-worth of earnings each year – 78% from exports.

But National, against the advice of Treasury, killed Labour’s scheme. No wonder our economy isn’t delivering.

I want to formally announce today that Labour will introduce a research & development tax credit. This is one of the best ways we can lift productivity & growth. In clean tech, there is enormous potential from companies like Lanzatech, Aquaflow, Flotech & Windflow. PriceWaterhouseCoopers predict that this area could add $7-22 billion more/year in value for the New Zealand economy. We will introduce an r&d tax credit initially at 12.5%. That will cost an average of $160 million/year – $800 million over 5 years.

This confirms Labour’s commitment to a smart economy. But it is a lot of money. It has to be paid for and the deficit means no new money is available. So we have to find savings. Today I am announcing how we will pay for it.

In another example of poor economic choices, National left every New Zealander having to pay for their transport & electricity emissions, but exempted farming from paying for their agricultural emissions. That is not fair. Having the taxpayer meet the cost simply means that the pollution goes on for longer. The exemption removes the incentive to agriculture to move more quickly to reduce global-warming gasses which account for 48% of New Zealand’s greenhouse gas emissions.

Labour is proposing to restore the entry date of 2013 for agriculture to come into the emissions trading scheme. This means farmers will pay for just 10 per cent of their 2005 agricultural emissions, plus any growth since then. We don’t believe this is asking too much. Agriculture is important, but all sectors need to pay their fair share.

National’s delay costs around $800 million over 5 years. We, as taxpayers, are paying for this. By reversing the delay, we can transfer this money to pay for the r&d tax credit. Boosting r&d can help our farming sector to be at the leading edge of work to reduce agricultural emissions.

Earlier this year, I outlined Labour’s action plan for jobs & growth. This is:

Tax changes to better support exports, not speculationIncreasing innovation to grow productivity & smart, successful businessesBoosting skills & trade trainingOwning our own future by increasing savings, stopping asset sales and keeping Kiwi land in Kiwi hands, andChanging monetary policy to support exports & jobs.

Today’s announcements build on this and show New Zealanders we have a plan to make the economy stronger and their lives better.

Want to comment? Go to the forum.


Attribution: Speech notes, story written by Bob Dey for the Bob Dey Property Report.

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Cullen on taxes, capacity constraints, more local body reform

Published: 14 August 2005

Finance Minister Michael Cullen didn’t sound at all like a politician about to lose his job when he addressed a Property Council breakfast in Auckland on Thursday. Straight into it, he talked about the economy “over the next 5 years”. He spoke with an expectation that he’d be dealing with it, not in pious hope of being allowed to continue.

Was this just a ploy, when the real Labour message is contained in electorate bribes and the previous lack of clear ongoing policy messages?

Below are notes from his address & answers to questions, covering issues of tax, capacity constraints and further local government reform.

Dr Cullen said the economy had grown by 20% over the last 5 years. There wasn’t room to debate whether that was by this government’s good management or a legacy from previous quality management.

Opponents harp on about lowering taxes. The Cullen answer, now as before, is that tax comparisons are often not like with like: “We & Australia are the only 2 countries in the world with a full imputation system. In the US they have double tax. These comparisons are often not properly made. It’s tempting to return to a full tax rate, and we could lower the tax rate. Everybody would be happier but it would in fact not be more efficient.”

Dr Cullen mentioned taxation of offshore investment as “the tricky bit” considered in a recent Treasury discussion paper “released to a resounding lack of applause”. He lumped the critics together as advisors who had built up skills in a complicated system which earned them large fees.

The present tax system on offshore investment was “a total mess and its rationale is non-existent now..… Investment is being driven into offshore low-tax countries for tax reasons.” Dr Cullen said no final decisions had been made on this aspect of tax, and nobody had come up with alternatives yet.

But it’s hard to argue tax policy with somebody who says that cutting taxes “creates instability”. In Labour’s case, this is because “our traditional constituency want us to spend….. contrary to what the media tell us.”

On the inevitable questions of Ireland & tax, Dr Cullen said Ireland had a zero manufacturing tax in the 60s-70s and nothing happened. It had “an inefficient peasant economy….. We don’t receive any subsidy. We’ve become a prosperous country with both our hands tied behind our back.

“Every time we take somebody off the land and put them in a factory, we probably lower productivity….. We are very thin on large corporates….. We don’t have a future as an electronics maker….. In Ireland, actually, the corporate taxes are quite high.”

In a challenge to New Zealand business, he said: “If you’re really serious [about wanting tax cuts], give me a payroll tax a la Australia, and I can give you a corporate tax cut. Which you don’t want. It’s not a fair comparison. It’s comparing one element, but I think it would be a wrong decision [to go that way]. Payroll tax focuses on labour & employment.”

As for property taxes, Dr Cullen told his Property Council audience: “I’m not going to stand up here and say we don’t have any capital gains taxes in New Zealand. That’s patently untrue [untrue to say there are none]. Our position on property is that the status quo is adequate….. so any form of property tax is off the agenda.”

On further local government reform, Dr Cullen said this was a matter to be brought up local rather than imposed from Wellington. “One of my people spends half his life just herding the Auckland cats,” he said, adding that there was a need to co-ordinate regional economic & infrastructure strategies.

He said Gwen Bull, deposed as chairman of the Auckland Regional Council when she lost her council seat last October, had done a very good job leading the Auckland mayors in their quest for an infrastructure package, and Labour would look favourably on further local body amalgamation moves. He added that having 3 district health boards in the Auckland region didn’t promote efficiency.

On public-private partnerships, Dr Cullen said the Labour Government “doesn’t have an ideological set against” them. Citing the example of the Alpurt (northern motorway extension to Puhoi) project, he said it was “almost cheaper for the Government not to pay for it off current income but raise a loan.

He said one of the gains in Australia in this area wasn’t well understood in New Zealand – that it wasn’t so much a matter of putting together the financial package but to look at the outcome, ‘Here is this problem, how do we solve it?’ “What we tend to do with Transit is a very rigid tender approach. That’s a thing we could do more thinking around.”

“We’re now getting severe capacity constraints. I’m surprised it’s taken so long for those to emerge on the labour side….. Importing skills can only be part of the answer.” Dr Cullen said New Zealand stretched its capacity in 2001-02 with a huge lift in immigration – adding to the workforce also required an increase in workforce skills and capital investment.

“We’re seeing the revival of the long-term industry apprenticeship, which the Government is keen to encourage.”

He said the student loan changes, “while having some benefits politically….. were designed to attract New Zealanders back to New Zealand.” Nearly all the big student debts were owed by Kiwis who’d gone overseas.

While the aging of New Zealand’s population has been emphasised in many ways, Dr Cullen said we now had more full-time students than people on superannuation, which brought its own extra requirements: “A more skilled workforce needs more capital investment.”

For Auckland, Dr Cullen said the land transport funding now was 10 times the level of 6 years ago, but there were limits: “Over the next 2-3 years in this region we are building as much as can be built. The challenge now is to get continuity, phase projects in a way the construction industry can deal with them.”

That statement is an indictment of the short-term thinking of New Zealand governments over a long period. Dr Cullen showed that, in welcoming industry apprenticeships, funding infrastructure and trying to get an investment focus on local projects rather than tax-effective schemes elsewhere, what’s needed to sustain long-term growth has dawned on him.

Our history is littered with downturns in which many skilled workers take off for Australia, never to return, and a significant downside to the Rogernomics freeing of the economy was that the Government didn’t play a strong enough role in workforce retraining during that national restructuring.

Infrastructure projects become a solution for many ailments – skilled jobs justifying a resurgence of skills training, improving the lot of the ordinary citizen. Dr Cullen also indicated his frustration – at one point on “the relatively weak leadership of the Tertiary Commission & the NZ Qualifications Authority”, later at the way Transit NZ has handled projects. He said Transit needed to be more flexible in its tendering, while the country need to turn business investment around, with a stronger focus on technology and research & development.

Dr Cullen said Transit “may have pre-empted a number of options” on Auckland’s western ring route and on bank bundling.

While New Zealand’s new national superannuation fund is nicknamed the Cullen Fund, Dr Cullen said he’d like to see more private investment on top of that enforced saving, and away from the nation’s savings focus of residential investment.

“I’m not saying we’re over-investing in property. What I’m saying is we are under-investing in everything else.” He said lower immigration over the next couple of years would lead to a fall in residential investment.

If you want to comment on this story, write to the BD Central Discussion forum or send an email to [email protected].

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