How our Tax Reform will result in more houses being built

We’ve had a lot of people asking about how our tax policy will result in more houses being built. This blog will answer that in more detail.

While the Establishment Parties are falling over themselves to build more houses, their policies leave the real problems unsolved. These problems include land banking, and viewing housing as an investment rather than as a means for providing shelter. Our tax policy would address both of these, and see developers scrambling to build rather than bid up the value of existing stock. 

Establishment Party approach

The line the Establishment Parties are pushing is that we just need to build more houses to solve the problem. National is pointing the finger at Councils for providing paperwork bottlenecks, when even their own attempt to step in and create Special Housing Areas has achieved little. Meanwhile the HomeStart scheme simply fans the flames of an overheated housing market.

Meanwhile the Labour Party is promising to put on their collective carpenter belts and build houses. Their policy raises as many questions as it provides answers, but that hasn’t stopped National pinching the policy by ordering Housing NZ to get building themselves.

Both Establishment Parties are perennially in denial about the real problems here – land banking and demand for housing as an investment that outstrips the need for shelter. Our tax reform policy will deal with both of these issues.

Land Banking

One real problem is land banking; developers or land owners sitting on land rather than developing it. They do this because they think the land will be worth more tomorrow than it is today, so they can bank the capital gains (which in some cases are not even taxed). Of course if enough land owners adopt the same attitude, it becomes a self-fulfilling prophecy.

Our TOP Policy #1: Tax Reform would spin that situation on its head. Land owners would no longer face ongoing increases in land prices without actually adding value. The purpose of the policy is to ensure that land and house prices stay flat while incomes catch up, so the days of speculating in land would be over.

Secondly the land owners would be paying an annual tax on the equity they hold in the land. Of course if they have debt they are already paying the mortgage, but any equity will attract a tax as if the money was put into a bank deposit. This tax reform will rapidly become very expensive for any person or company that is sitting on unused land. This would provide a strong incentive to build, so that the land can provide a return.

For these two reasons we would expect to see our TOP Policy #1: Tax Reform to result in a burst of building activity on vacant land.

Housing as shelter, not investment

The other driver of our housing crisis is the view of housing as an investment rather than a means of providing shelter for all. We simply cannot keep getting richer buying houses off each other indefinitely and this has to stop. Our TOP Policy #1: Tax Reform will halt the rise of house prices, which will cut off the demand for buying housing as a speculative investment.

We need to stop putting all our investment into the existing housing stock, and instead put it into productive uses. That includes building successful businesses and building new houses. Halting our crazy obsession with bidding up the prices of existing houses and land will hasten the building of new houses.

Reform of the way we tax housing in New Zealand is long overdue. The current path is increasing inequality, starving our businesses of productive capital and choking off the supply of new housing. Housing should provide shelter for all, not a get rich scheme for a few.