Ban house sales to Aussies among BNZ economist Tony Alexander’s eight radical ways to cool down overheating New Zealand housing market

Bank of New Zealand chief economist Tony Alexander has proposed eight ways the NZ government could act to cool down the overheating property market, though he expects there is little chance they will be implemented.

They include outlawing of sales of New Zealand residential property to offshore buyers and implementing a tax on New Zealanders who own property overseas.

In his latest weekly newsletter, Alexander warns of four housing problems facing New Zealand being: “affordability, bank exposures should prices fall, the New Zealand dollar’s surge as monetary policy fights housing sector inflation and physical accommodation availability”.

The latest data confirms that house prices have been rising strongly, most notably in Auckland, New Zealand's biggest property market.

In May Real Estate Institute of New Zealand (REINZ) figures showed the Auckland median house price increased to a new record high median price of NZ$565,000 (A$475,000) with median prices up 14.8% over the past 12 months.

But price rises have not been restricted to Auckland.

The National, Auckland, Christchurch and Other South Island Stratified Housing Price Indices all hit new record highs in May.

The Christchurch Index is up 13.1% and the Other South Island Index up 5.4%.

Alexander says the optimal solution to cool the market is a “quick jump in house supply combined with reductions in building materials costs”.

He proposes eight ways to achieve this:

• First initiate a large builder training programme targeting not just youth but low skilled migrants. Yes, the  migrant gates would need to be opened. Just the signalling of strong intention to boost builder numbers  would make investors think twice about their capital gain assumptions.
• Second, ban councils from imposing any development fees and allow developers to install their own infrastructure.
• Third, create an SOE whose sole purpose is to undercut existing building materials suppliers through bulk purchases from offshore, nodal warehousing and distribution from just three or four locations in the country, with a separate agency responsible for monitoring the quality of materials sourced.
• Fourth, initiate a new large state house building programme relying largely on the to be created new carpenters etc. Constrain new state houses to more efficient building systems including containerised modular housing (this doesn’t involve shipping containers), central and screwed in foundations, etc.
• Fifth, ban house sales to non-residents (even new houses given the ease with which special developments could arise targeting solely folk offshore and soaking up construction sector resources).
• Sixth, impose a tax on all houses owned by Kiwis offshore with the aim of encouraging them to sell them.
• Seventh, put in place a capital gains tax on second properties and farmland and immediately payable stamp duty for all second house purchases.
• Eighth, rezone all land within 10-20 kilometres of existing city boundaries as residential.

However, Alexander says the chances of such radical policies (plus others) being imposed are “low, zero, zero, mild, mild, zero, low, zero".

Instead what he says will happen is that “some land will be freed up but it will little affect section prices, construction will soar and rising costs will force higher interest rates and a higher NZ dollar.

“The Reserve Bank will tighten high loan to value lending but the impact will be minimal and mainly encourage young buyers to raise more expensive  finance elsewhere (a big business opportunity looms there) or to leave the country to make a purchase overseas,” he says.