Richard Prebble: Labour’s housing package a loss of credibility moment


If spin could build houses we would all live in mansions.

“$3.8 billion for housing”. The Government could not say over how many years the money will be spent. It will take them until June to work out the details.

We know now this package will not solve the housing crisis. There is nothing to zone more land for housing, give local government revenue to fund infrastructure, cut red tape to allow quality factory-built housing or ending the money printing that is fuelling house prices.

Labour has decided solving the housing crisis is too tough. Instead Labour has decided to find someone to blame, “tilt” the market to pick a winner and hope their supporters do not realise they are the real losers. Investors are the scapegoats. First-home buyers are intended to be the winners. Tenants have been thrown under the housing bus.

The law of unintended consequences says it is impossible to do one thing, such as helping first-time buyers, without having other unanticipated effects.

Murphy’s Law, “if anything can go wrong it will”, predicts the unintended consequences will be bad.

The package will make the housing crisis worse.

Here are a few likely unintended consequences.

People will wait 10 years before selling.

Many people have to vacate their family home for a time. There is already reluctance to rent for fear of being caught by the bright-line test. The 2018 Census found the number of empty private houses in Auckland had increased to around 40,000. If the Government had abolished the bright-line test thousands of rentals would have come to market. As it is the number of ghost houses will increase.

If the package succeeds in discouraging investment there will be fewer rentals. Rents and homelessness will rise.

With the Reserve Bank printing almost a hundred million dollars a day interest rates will remain low. Asset prices will continue increasing. The tax on interest may not deter investors.

The housing package is not a practical, workable solution. The Government just wants to be seen to be doing something. No wonder the Treasury is not certain what the package’s effects will be.

The biggest effect is on Labour’s credibility.

It takes years to establish credibility and just a moment to lose it. Extending the bright-line test was a loss of credibility moment.

Economists agree that taxing the increase in value of a house is a capital gains tax. The bright-line test is a wealth tax.

Jacinda Ardern has been very clear. “I am also ruling out a capital gains tax under my leadership in the future.”

During the election campaign she repeated her promise not to tax wealth. “I won’t allow it to happen as Prime Minister”.

For Ardern to pretend the Government is not breaking a promise that she has repeatedly made damages her credibility.

It would have been better last week to be upfront and say “the housing market is a bubble. The government has found it impossible to keep its promise not to have a capital gains tax”.

Perhaps Ardern could not do this because the truth is even worse.

The Prime Minister claimed last week that the Government was “quiet” during the election campaign about any extension of the bright-line test. Not true. Grant Robertson ruled out any extension during the campaign. He now says he was “too definite”.

What are we to make of their statements? The only explanation is Ardern had decided before the election to introduce a capital gains tax on investment housing but kept quiet because she knew it would cost Labour votes.

It is worse than a broken promise. It is election by deceit.

Parties that expect to win are usually very careful what they say.

Maybe Labour voters will not care that Ardern was deceitful.

The journalists were also deceived by her no capital gains tax pledge. In the last days of the campaign Judith Collins predicted a Labour/Green coalition without the handbrake of New Zealand First would introduce wealth taxes. The media believing Ardern’s pledge rubbished Collins’ prediction.

Reporters now realise Judith was correct and they were misled. The Jacinda love fest with the press gallery may have ended.

The 300,000 usually National voters who decided last election that Ardern was another John Key have had a rude awaking.

A finance minister who lacks credibility with the market is a liability. Investors had a right to expect that they could rely on the Minister of Finance’s word ruling out any extension to a bright-line test.

Why should the market ever believe Robertson again? Today his target is housing investors. Who is his target tomorrow?

Credibility once lost is very difficult to restore.

Never has a government traded away its credibility for so little.

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