John Key’s housing package leaves Pacific islanders in the cold
16/08/2013-Prime Minister John Key’s affordable housing announcement last Sunday provided little comfort for the Pacific community and low income New Zealanders.
The changes announced were aimed more at middle income New Zealand. It side-tracked one of the key issues stopping many Pacific islanders from owning a home – a secure and permanent job paying a living wage rate.
The simple truth is that mortgage financing is not accessible to workers employed in volatile and low wage industries such as in the services, food and hospitality sectors, aged care, and those on casual or seasonal work. Those are the sectors where the majority of Pacific islanders work.
For people in those situations, they cannot access Mr Key’s changes to KiwiSaver and Welcome Home Loans aimed to fund $64 million extra in first-home buyer subsidies over the next four years.
The reality is immediately apparent.
One of the changes announced will have a negative impact on low income New Zealanders. Buyers who might have qualified for low or no deposit help from the Government previously, will now have to save a 10 per cent deposit to qualify for a KiwiSaver home deposit subsidy and Welcome Home Loan scheme. That is a huge barrier to many low income families who have been saving to buy a first home.
The changes come into effect on 1 October, 2013.
And even though the housing affordability announcement was one of Mr Key’s major highlight in his speech last Sunday, many in the Pacific community knew there was nothing in it for them. They already knew what the main cause of the housing crisis is. It has been public knowledge for some time.
The crisis is caused by a lack of affordable housing available, and the role played by property speculators. And Mr Key’s changes did not address these two major causes.
Back in February 2012, the Department of Building and Housing forecasted that New Zealand needs to build 20,000 to 23,000 housing units a year over the next five years to keep pace with the rate of population growth.
It was known in February 2012, that New Zealand’s building rate was below 15,000 a year for the past three years.
Then in August 2012, the Salvation Army released a discussion paper on Auckland’s housing situation, called ‘Adding It All Up: The Political Economy Of Auckland’s Housing’.
The author and Salvation Army social policy and parliamentary unit senior analyst, Mr Alan Johnson, said that urgent action is needed to counter 30 years of ingrained ideology and policy that has led to some Aucklanders growing rich through property speculation, while others live in overcrowded houses, in sheds and in caravans.
The problem, according to the report is set to get much worse in the years to come, given the lack of building happening and the population increase projected.
It pointed out that families, young and old, are locked out of buying homes by impossibly high prices and as low-income families are slashed from Housing New Zealand waiting lists they end up competing with middle-income earners for a limited supply of private rental accommodation.
According to the report, the most important step the Government could take to support first home buyers would be legislating a capital gains tax to drive property investors out of the housing market.
But that is something the John Key administration is staunchly against.
The Salvation Army report estimated that close to half the homes sold in Auckland are to speculators, those who already own at least one home.
It lended its voice to a growing number of experts reconfirming that the two major causes of the housing crisis are, speculators in the housing market, and lack of affordable housing.
While a key barrier for low income families owning a home is the market trend towards a disposable, casualised workforce maintained around the minimum wage. Recent changes and proposed amendments to the Employment Relations Act making it more difficult for vulnerable workers to get job security which is making it virtually impossible for families working in these sectors to gain access to mortgage finance.
It is an area that Labour leader, Mr David Shearer said his party would address if it wins the general election next year.
“National’s offering [on Sunday] is disappointing,” he said.
“National needs to address the two major drivers of house prices – the shortage of affordable homes, and speculators. It’s time to stop dancing around the problem and offer some real solutions.”
Labour’s solution is well known – build 100,000 affordable homes over 10 years to increase the supply of entry-level housing.
And remove speculators from the housing market by introducing a Capital Gains Tax.
“I am also determined to reduce speculation-driven demand in our housing market. Labour will restrict sales to overseas speculators and clamp down on speculators here through a capital gains tax on houses bought over and above their own home.”
And on top of that, he promised to increase the minimum wage and support the Living Wage campaign.
He told the New Zealand Pacific earlier this year, “Kiwis deserve to earn a decent wage for a decent day’s work. Labour would raise the minimum wage to $15 immediately. That would put an extra $50 a week in the pockets of full-time minimum wage earners.
“Labour is also championing the living wage campaign which has been calculated at about $18.40 an hour,” he added.
“Everyone deserves the same opportunities no matter where they come from or what they do for a job.”
THE VALUE OF JOBS
In October 2012, the World Bank released its ‘World Development Report 2013: Jobs’.
The report outlined that the importance of jobs goes far beyond the earning of income alone.
“Jobs are a cornerstone of development, with a pay off far beyond income alone. They are critical for reducing poverty, making cities work, and providing youth with alternatives to violence,” said the report.
It found that poverty fell as people worked their way out of hardship and jobs empower women to invest more in their children. And as efficiency increased because workers got better at what they do, as more productive jobs appeared, and less productive ones disappeared. It meant societies flourish as jobs foster diversity and provide alternatives to conflict.
To get the right jobs, World Bank President Jim Yong Kim said in a statement, “Providing key services like health, education and a good investment climate can help create the right jobs that will lead to improved standards of living and inclusive growth.”
The report’s authors highlighted how jobs with the greatest development payoffs are those that raise incomes, make cities function better, connect the economy to global markets, protect the environment, and allows people to actively participate in their societies.
“Jobs are the best insurance against poverty and vulnerability,” said Kaushik Basu, World Bank Chief Economist and Sr. Vice President, “Governments play a vital enabling role by creating a business environment that enhances the demand for labor.”
Policy priorities in urbanizing countries like New Zealand are vitally important to focus on better infrastructure, connectivity, housing, and city planning.
President Kim summed up the importance of jobs.
“Jobs equal hope. Jobs equal peace. Jobs can make fragile countries become stable.
“A good job can change a person’s life, and the right jobs can transform entire societies. Governments need to move jobs to center stage to promote prosperity and fight poverty.”
In February 2012, Mr Alan Dudson, an accountant examined why house prices were too high and what should be done to change the situation. His findings were published under the title, ‘Lets stop subsidizing property investors’. It was published by the NZ Herald.
According to Mr Dudson the reason for the housing crisis “is a flawed tax system that favours the rich and punishes the poor.”
He said, “under the present tax laws those who are paying their tax are subsidising the wealthy property investor paying little or no tax. It is these investors in real estate who are paying little or no tax that are accumulating huge wealth.”
He explained, “Any investor in residential real estate, as of right under our existing tax laws, can deduct against their rental income the costs of rates, insurance and maintenance, plus all interest charges on their mortgages. This applies to all property whether it is residential, commercial, retail, industrial or farms.
“An investor has the huge advantage of being able to gear his or her portfolio to pay little tax on their investments and deliberately offset any further loss against other earned income.
“For many of these investors their sole purpose is to keep on buying more and more properties and mortgage gearing their property portfolio so they pay little, if any, tax. They are legitimately avoiding paying tax on their incomes. These investors own up to 45 per cent of the houses in New Zealand. There is little housing stock for families to buy and when it comes on the market it is expensive and the investor will always have the advantage.”
Looking at it from another perspective, Mr Dudson said an investor creates little, if any wealth for New Zealand, whereas the tenant paying rent must have a job or jobs to pay the rent and is actively contributing to the nation’s wealth or GDP.
“Most investor owners care little for maintenance on their properties. Their whole purpose of ownership is capital gain.”
He detailed an example by comparing what an investor goes through to that of a young working couple with children trying to buy their first home.
“A property investor can buy a house in Auckland for, say, $600,000. A bank will probably lend the investor 90 per cent or more of valuation, particularly if he has other properties to leverage against.
“From annual rental received, say $32,000, the investor can deduct rates, insurance and maintenance, as well as all interest costs on the mortgage, virtually eliminating any tax on income received.
“Not a bad investment considering such a small deposit and capital gains of at least 6 per cent to 8 per cent a year – say $36,000 to $48,000 a year, tax free.”
Compare this to a young couple trying to purchase a home for themselves and their children.
Explained Mr Dudson, “Say they also buy a house for $600,000. They will be asked by the banks for a deposit of 20 per cent or $120,000, with a loan promised for the remaining $480,000. So they have to find a deposit of $120,000 and interest payments of say 5 per cent on the loan of $480,000, say $24,000, plus rates, insurance and maintenance.
“All this has to be paid out of income from salary or wages after tax has been deducted. To raise a deposit, most would need a family which has the funds to be able to help them.”
And therefore, the answer according to Mr Dudson is to introduce a capital gains tax on all investment properties and should be assessed at least every five years.
More importantly he added, “is to take away the tax advantage to investors being able to deduct interest against their investment income on all property investments.
“It would do what any sensible tax system should do,” he said.
“It would reward those working hard and punish those contributing very little to the country’s wellbeing. It would flood the market with thousands or tens of thousands of houses for sale. It would immediately lower the cost of housing dramatically and enable thousands of New Zealand families to buy their own homes.”
He predicted that realigning the tax system in his way would bring property prices down, and borrowing becomes easier and cheaper. While at the same time, costs saved must be channelled into compulsory savings.
“It is extremely important to reward those who work hard and save, whether they are salary or wage earners or owners of businesses or farms. It is imperative that these people are protected because they are the future of New Zealand and they are the ones that create New Zealand’s wealth.
“It is important that a fair tax system benefits these people.”
Mr Efeso Collins who is standing for the Otara/Papatoetoe local body elections this coming October summed up the Pacific situation on the Daily Blog last month.
“The rate of home ownership amongst Pasifika at the last census was 37 per cent compared to 67 per cent for the rest of New Zealand,” he wrote.
“Fifty eight per cent of Pasifika people live in rental accommodation, almost double that of the New Zealand population. Our people have the lowest rate of home ownership in the country in comparison to other ‘main groups’. There are a number of cumulative challenges that impact on these figures.”
He listed some of the cumulative challenges as low incomes, poor health outcomes, cold and damp rental housing, high unemployment especially among young Pacific people and educational underachievement.
Yet the John Key government concluded Mr Collins, “is blind to those issues whilst telling us that we need to upskill and do more to make a positive contribution to New Zealand society.
“That’s rich coming from people in well-fed and well-warmed houses. The reality is a stark contrast for Pasifika people in New Zealand.”
A reality that could easily change for the better if low income New Zealanders have secure permanent jobs, earning a living wage. And they are supported by a government that underwrites policies for a fairer tax system.