> The system is benefiting the already wealthy and leaving others, particularly young people, out in the cold.
That is correct, but I think your cause and effect analysis is wrong.
We have 5 million people bidding against each other on 2 million households.
People bid as much as they can on their home, so if lending becomes looser, home prices shift up. The long term affordability doesn't change much. There can be other dynamic effects in the short term, I am talking about long term stability.
People bid to the limit of their affordability, so houses remain at the limit of affordability, regardless of the actual prices.
The structural problem is that home prices are a zero-sum game where we collectively bid to the point we can individually only just afford the interest payments. And we also screw the country because we are bidding on how much money we can give to Australian banks.
Home prices follow the same distribution as income (I think), until you reach a minimum wall of a few hundred thousand, below which nothing is available.
The problem of house prices is an effect of bidding, and I believe prices have almost nothing to do with land availability or the costs of building houses.
We could build more houses, but wealthier people will just buy two or more. I would like to own a second home in town for my occasional use.
What to do? I don't know. Keep increasing minimum wage so that 50% of people are in the lowest income bracket? Extra taxes on investment properties or empty vacation homes? Suggestions?
Are our city council rates already a significant way towards a Georgist taxation system? I looked at a wealthy suburb in Christchurch, and they were paying 5x as much as I do on rates ($15k per annum for the house I looked at).
Living in Christchurch, we had heaps of as-is houses that couldn't get a mortgage, and their prices reflect the cash price, which was wayyyyyy lower than the same home would be with a mortgage. I bought a perfectly good 3 bedroom home for land-valuation + $5000. At least half the price, because a mortgage was unavailable (and market was slow, so amplification factor on price too).
Make housing less attractive as an investment vehicle. In my opinion the best way to do this is with the tax system (which, in NZ, currently favours property investment to a large extent).
Two proposals that are often discussed are a capital gains tax (CGT) and a land value tax (LVT). Personally I would prefer a LVT. A CGT would be an improvement on the current situation, but it would be a big impediment to freely moving to take up a new job or for family reasons. An LVT has the opposite problem of being a potential impediment to staying put if the value of your land increases relative to other areas. For an older person who is no longer working this could force them to find a new home but could be dealt with by deferring payments until sale or settlement of an estate.
I am a strong opponent to CGT for businesses. I suspect it would be hard to introduce CGT just for real estate. Reasons for hating on CGT:
1. in NZ we need more investment in businesses, and less in real estate. I think introducing CGT would decrease business initiation and growth.
2. Most businesses fail i.e. your expected returns are often negative. The power law returns mean your expected return is highly dependent on winning big (VC model that one massive winner makes up for 10 losers), but CGT discourages winning big, and it discourages early investment in businesses.
I don't think it would be hard to apply a CGT to real estate only, as all transactions are centrally recorded, but it would disincentivise exchange (which presumably occurs when the buyer sees a more valuable use for the land), unless it is charged on unrealised gains, which is a can of worms.
Other possible measures:-
Stamp duty, as in the UK. Also disincentivises exchange.
Unimproved land value tax (Georgism). (Would need to apply to alienable land only, or there would be significant impact on rural iwi, and possibly a threshold of say $100k/ha unimproved land value since farmers whinge so loudly.) Fewest problems in tax policy terms.
Revise zoning. Change residential to mixed use (light traffic commercial, up to 25 employees, say), allow up to four storey and multiple-household buildings, prohibit "amenity" and "character" objections to consents (apart from noise and smell) and building size/usage/land use covenants near (<10 km radius) the centres of cities, and probably some other measures. Densification policies. Streamlined planning and consenting of developments.
I agree that we need to build capital for business investment. Tax policy (and middle class culture, as embodied in zoning rules and district plans) is heavily tilted against that. Been that way my whole life.
That is correct, but I think your cause and effect analysis is wrong.
We have 5 million people bidding against each other on 2 million households.
People bid as much as they can on their home, so if lending becomes looser, home prices shift up. The long term affordability doesn't change much. There can be other dynamic effects in the short term, I am talking about long term stability.
People bid to the limit of their affordability, so houses remain at the limit of affordability, regardless of the actual prices.
The structural problem is that home prices are a zero-sum game where we collectively bid to the point we can individually only just afford the interest payments. And we also screw the country because we are bidding on how much money we can give to Australian banks.
Home prices follow the same distribution as income (I think), until you reach a minimum wall of a few hundred thousand, below which nothing is available.
The problem of house prices is an effect of bidding, and I believe prices have almost nothing to do with land availability or the costs of building houses.
We could build more houses, but wealthier people will just buy two or more. I would like to own a second home in town for my occasional use.
What to do? I don't know. Keep increasing minimum wage so that 50% of people are in the lowest income bracket? Extra taxes on investment properties or empty vacation homes? Suggestions?
Are our city council rates already a significant way towards a Georgist taxation system? I looked at a wealthy suburb in Christchurch, and they were paying 5x as much as I do on rates ($15k per annum for the house I looked at).
Living in Christchurch, we had heaps of as-is houses that couldn't get a mortgage, and their prices reflect the cash price, which was wayyyyyy lower than the same home would be with a mortgage. I bought a perfectly good 3 bedroom home for land-valuation + $5000. At least half the price, because a mortgage was unavailable (and market was slow, so amplification factor on price too).