COMMENT: If you’ve ever watched a post-apocalyptic movie in which the word is thrown into chaos because of a disaster, a war or an alien invasion you’ll know that there’s a fairly predictable template which they all play to. This usually involves escaping from an area of great danger (unless a loved one is stuck in that area in which case the story is about going into the great danger), all the while showcasing the redemptive power of the human spirit and our ability to overcome any obstacle (unless there are zombies, in which case the script goes out the window).
But almost always, playing out in the background is a period of great carnage and looting where (in contrast to our noble hero) the rest of humanity suddenly becomes depraved and starts destroying the city and embarks on a dog-eat-dog exercise in survival by stripping supermarkets and businesses of their stock – oblivious to concepts of ownership and private property.
The reason for this behaviour is obvious. The people in the story instinctively recognise that the steady supply of these items no longer exists and that they need to stockpile as much as they can in order to survive until such a time as order is restored. Indeed, we had a mild version of this during the first Covid lockdown when thousands of Kiwis inexplicably decided that their survival depended on the hoarding of toilet paper and flour as they descended, en masse, on supermarkets like Old Testament locusts intent on stripping their targets bare.
Two very clear lessons can be drawn from this:
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1. If you reduce the supply of something important, the demand for it will increase.
2. You can’t help everyone by simply redistributing what you have.
The truth of these things is blindingly obvious when expressed in a story like this – but seems to get lost in translation when it gets mixed up with real world politics and ideology. Imagine, in our apocalypse story, that one factory is still operating and producing much needed food – and that the emergency Government’s response to this is to hit this factory with more tax, tougher rules, and measures designed to significantly slow the rate of production of that food.
Will rental supply shrink on the back the of the Government’s recent housing market changes? Photo / Ted Baghurst
That would be insane – right? Yet that’s exactly what the New Zealand Government has just done. Incredibly, Robertson, Ardern and co appear to actually believe that they can “solve the housing crisis” by introducing a range of measures to make it more difficult to invest in the residential property market. These measures include the recent ring fencing of tax losses, the introduction of a capital gains tax through the backdoor by using the Brightline test for a purpose for which it wasn’t intended, and the removal of the ability to claim interest as a deductible expense.
These changes may sound pedestrian to non-investors, but their effects will be far reaching and overwhelming negative, and while we may not see carnage and looting as a direct consequence of these measures (at least, not yet), there are some very predictable consequences to hitting residential property investment:
1. Property investors and potential property investors will delay, or cancel, plans to purchase new rentals (this has already started).
2. Over time, this will reduce the number of rentals available. These properties will not now simply be sold to first home buyers as is the naïve belief of the Finance Minister. Just as in our apocalypse story, you can’t help everyone by simply redistributing what you already have because total demand is growing, not static. This means that we will continue to need more rentals even if more people own their own home.
3. This stagnation or reduction in the supply of rental properties will cause a rental crisis in some parts of the country and will push up rents, significantly, beyond the levels already caused by the policies of this Government.
And here’s the kicker. While all of this is happening, house prices will continue to go up (particularly in Auckland) and some first home buyers (supposedly the beneficiaries of the Government’s latest moves) will continue to be closed out of the market and unable to buy their first home.
Who needs an apocalypse movie when there’s a real one playing out right in front of our eyes?
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at ashley@nzemail.com
