Writing in the Herald, Brian Fallow argues that the real cause of the housing crisis is the landlord in the room. Landlords - speculators by another name - are the marginal buyers in the housing market. And the prices they pay are not set the returns they can get from rents, but by rational expectations of tax-free capital gains, which are in turn driven by poor policy settings:
The combination of high investor demand and rampant house price inflation is no coincidence. It reflects the toxic interaction between how the tax system and the banking system view the purchase of rental properties.
For the taxman, the landlord is in business and entitled to deduct all the costs, including interest, incurred in earning taxable rental income.
For a bank, the landlord is someone borrowing against the security of a dwelling and banks are generally happy to lend as much as the Reserve Bank allows.
But few other businesses can gear up their balance sheet to the same extent. Few other investors can enjoy the same benefits of leverage in a rising market, amplifying the increase in their equity until they are ready to collect their tax-free capital gain.
As a result, landlords are buying 40% of houses for sale in Auckland - and up to 80% in some areas. And they're driving real home buyers, who don't enjoy their tax advantages, out of the market.
Tackling this requires both eliminating the tax advantages and restricting credit to speculators. The first is easy - eliminate negative gearing and impose a comprehensive capital gains tax. The second is harder as higher loan-to-value ratios aren't going to impact landed Boomers who have paid off their original homes. And unfortunately, by reducing demand, either could lower house prices - an anathema to the Auckland investment property-owning National Party. But if we don't stick it to landlords, then the alternative is that New Zealand becomes a society of landlords and tenants, rich people and peons. In the nineteenth century, the Liberal Party made sure that didn't happen to us, by breaking up large estates and strangling New Zealand's wannabe landed gentry at birth. We need a government that will do the same to our landlords - and fast.