Housing Legislation Amendment Bill

I am very glad to take a call on new Part 4 of the Housing Legislation Amendment Bill—yet another great housing policy that we are having the opportunity to debate this afternoon in our Committee. I must say how refreshing it is to finally have some good housing policy to debate. For those of you who take an interest in #ChangeTheGovt, this afternoon in the House is a little opportunity to get a feel for what it is going to be like after the election next year, because we are going to be in the House here, discussing meaningful, transformational housing policy, like building 100,000 affordable homes for first home buyers and like taxing speculators.

New Part 4 of this bill basically pushes out what has come to be known as the brightline test from 2 years to 5 years. Let me explain to folks what that means: in September last year, in one of its many rushes of blood to the head about the housing crisis, the National Government, presumably prompted by David Farrar’s overnight polling, decided that it had better make some kind of announcement on housing in order to try to placate an electorate that was increasingly worried about the effects of the housing crisis. What it announced was a 2-year brightline, so that if a property investor sold a rental property within 2 years of buying it, then they would pay income tax on the capital gain.

Ostensibly, this was the Government acknowledging, even though it had been denying it for the last 2 years, that speculators were a problem in the market. Minister Nick Smith does not even like to use the term “speculator”. He does not agree with the use of that term. This policy flip-flop by National, implementing a 2-year brightline test, was, effectively, an acknowledgment that speculation is a problem in the housing market.

We subsequently found out from Government papers released under the Official Information Act, that Treasury had done the modelling for the brightline test and estimated that the 2-year brightline would be likely to have an impact on a maximum of 1,000 of the nearly 80,000 house sales each year, that it would raise just $18 million, and that it would affect less than 2 percent of all house sales. So Treasury basically said a 2-year test on taxation requiring income tax to be paid on the capital gain from the sale of a rental property within 2 years of its purchase—Treasury and a host of other Government advisers basically said it would have virtually no impact.

Did that stop the Government from announcing it? I do not think so, because it saw a headline. It saw a press release and a headline, and if we have learnt anything from Nick Smith’s long parliamentary career, he starts with the press release and then works his way back through the policy development process, in reverse, right back to trying to find the evidence to justify the policy to support the press release. He is a master practitioner in the art of—

💬 Hon Members: Policy-based evidence.

—policy-based evidence-making—thank you very much, colleagues.

I think it is plain for anybody to see that under this National Government, property speculators have been allowed to run riot. Property speculators are rampant, particularly in the Auckland market, and we see from the latest CoreLogic data that speculators account for 46 percent, on average, of all property transactions. Nearly half of all homes purchased at the moment in the Auckland housing market are being snapped up by speculators, and if anyone here reads the New Zealand Herald newspaper, they will know that people are making a killing—an absolute killing—buying and selling properties, sometimes within even days or weeks of the original purchase, making hundreds of thousands of dollars in the process. It is so out of control that it is clear that many of these speculators are, in fact, paying income tax on it, but the housing market, as Nick Smith said today, is so out of control, that the massive capital gains that people are making are such that they are not deterred by the prospect—[Bell rung]

💬 Grant Robertson: I raise a point of order, Mr Chairperson. Under Speaker’s ruling 87/5 it says that the Minister who is responsible for the bill has to be in the chair or leave the Chamber. The Minister responsible for this bill is in the Chamber, but not in the chair. Either of those two options works for me, Mr Chair.

The CHAIRPERSON (Hon Chester Borrows): Oh, that is very good of you, to make that concession.

💬 Hon Judith Collins: Do you want to be in the chair, Minister Smith? Fabulous. Thank you so much, very good. That’s so nice—the nicest thing you’ve ever done for me, Grant.

The CHAIRPERSON (Hon Chester Borrows): Are flowers going to follow now, or something, are they? I call Phil Twyford.

Very good decision, Mr Chairman. One of the reasons that property speculation is bad—and I mentioned in my first 5 minutes that property speculators currently account for 46 percent of all transactions in the Auckland market at the moment—is that property speculators are going around the suburbs of Auckland and basically hoovering up affordable homes.

If you look at the data for a suburb in South Auckland like Ōtara, which has always had very affordable housing—it is one of the places in Auckland where young families can go and housing has been affordable. It is where people go to get a start in life. In Ōtara speculators account for, not 46 percent of all property transactions, which is the average across Auckland, but they are snapping up 80 percent—eight-zero—of all property transactions. So it should not surprise us that homeownership rates are falling in Ōtara four times faster than the national average. As the speculators go in and hoover up all these houses, homeownership rates are plummeting. Homeownership rates are falling over most of Auckland, except in the very leafy, wealthy suburbs. So in a place like Herne Bay, the beautiful suburb of Herne Bay, homeownership rates are actually going up, but across much of Auckland, including west Auckland, where I am from, homeownership rates are falling, and entire streets now are owned by property investors, many of whom are offshore absentee landlords.

So this new Part 4—basically, what it does is it pushes out the brightline test from 2 years to 5 years. I want to explain, for people who have not followed this debate, what the brightline test is. Under New Zealand tax law, you normally would be expected to pay income tax if you were deemed to have purchased this rental property for investment purposes—with the intention of making a profit on the future sale of that property. It is a very subjective test about intention. What the brightline test does is it says: “No ifs, no buts. If you sell it within this period”—2 years in the case of the current law, and 5 years in the case of our amendment—“you pay income tax, regardless of your intention.” So it overrides the intention test, and it, effectively, puts in place a capital gains test for residential property speculation. We think that is a good thing to do, because it is very important that we start to squeeze property speculation out of the housing market.

There are massive capital gains that people are making—entrenched expectations of capital gains—which has a self-fulfilling effect. It drives more and more people into the market who think that in John Key’s New Zealand the only way you can get ahead, the only way you can make a dollar, is by speculating in real estate. We have to stop that, not only for the good of our children and our grandchildren, so that future generations can have some prospect of owning their own homes in this country, but also because it is enormously damaging to our economy to have real estate speculation sucking vast amounts of capital into what is an unproductive business activity that generates no jobs and no exports.

Let me give you this statistic. In the last 12 months, banks in this country lent $5 billion to the manufacturing industry—$5 billion to the manufacturing industry. In the same period they lent $25 billion to property investors. I think that gives you a snapshot of the state of our economy, and the fact that there is a vast, inflated bubble in the housing market that is sucking huge amounts of productive capital into property speculation.

Labour believes that if we push the brightline test out to 5 years, that will make a significant difference. The basis of Treasury’s advice—that the 2-year brightline would not make much of a difference—was, of course, that property speculators would hold on to a property for 2 years and a day, and then flick it on. So not only would it generate virtually no revenue; it would have very little effect in changing the behaviour of property speculation. We believe that 5 years would make a significant difference, but for us this is a down payment. It is merely a down payment.

Andrew Little has signalled that Labour will move on negative gearing—that is, the ability for property investors to write off any losses they make on a rental property against other taxable activity. So if you buy a property and you are leveraged up so high that you are paying the bank more in interest than you are getting back in rent, you are making a loss on that property. Taking into account all the other outgoings like rates, and insurance, and maintenance, if you are making a loss, you can then offset that loss against other tax that you are paying, perhaps for your job or for some other business, or some other investment. That is a huge, huge public subsidy for property speculation, and we are told by the Inland Revenue Department that last year property investors snaffled up $650 million in tax breaks. The public of New Zealand gave property speculators, some of whom own six, seven, or eight properties—they pocketed $650 million. “Thank you very much, Mr Taxpayer.”

If we do not deal with the problem of property speculation, we will never ever fix this broken housing market. If we build houses, if we reform the planning rules, and if we do all those things we can get the market back in balance, hopefully that will reduce the capital gains and drive the speculators out, but, in our view, fixing the tax settings that now incentivise a speculative mania in the housing market and threaten the very financial stability of our economy and our banking system has to be a top priority, and that is what new Part 4 will do.

Thank you very much for the opportunity to contribute in the debate on new Part 4 of this bill. It is worth noting that this is a critical element in terms of the overall scope of this bill, which is about how we improve the affordability of housing for New Zealanders.

I want to take people back to the origin of the 2-year brightline test, which is being extended in new Part 4 of the bill in front of us today, and it takes us back to Budget 2015. In the build-up to Budget 2015, New Zealanders’ concerns about the housing market, about the affordability of housing, were rising. It was a time when price rises that had never been seen before in Auckland were starting to get into the consciousness of New Zealanders. The Government was flat-footed, because what we came to discover was that there was actually nothing in the Budget on housing. It did not have anything in the preparation for the Budget that had taken place to deal with this emerging housing crisis, with 20 to 25 percent annual increases in the price of houses in Auckland. We know this because once all the documentation from Budget 2015 was released, there was nothing in it about the brightline test. Officials had not done any modelling.

Just reflect on that for a minute. The Government introduced, under urgency and around the time of Budget 2015, this brightline test, but it never modelled what it was actually going to do. In fact, it got to a completely farcical point, which some people might recall, with Bill English admitting on television that he had no idea whether this brightline test would have any impact at all. Eventually, some work was done—well, actually it had been done earlier, in 2010—and it was eventually released. It said that the 2-year brightline test that the Government brought in would net, at most, 1,000 of nearly 80,000 house sales and raise just $18 million per year in revenue for the Government.

The test was a weak and half-hearted measure. It came in because the Government had had its hand forced. The Government kept saying there was this thing called the intention test: if you purchased a property with the intention of selling, you would have to pay a tax on the capital gain. Of course, no one admitted that. No one said “Yes, that is my intention.”, despite the fact that thousands of homes were being flipped over quickly, for profit. So the Government, in a corner, said: “All right. We’ll do a 2-year brightline test.”

I sat on the select committee when we addressed the issues that are contained in this part and relate to the brightline test. Treasury was very clear. It said: “If a Government is going to do this, at least make it 5 years because the behavioural impacts will be much higher if you say to somebody that if you try to sell a house, an investment property, within 5 years you will be taxed on that.” The advice that we got from officials was that 2 years was not enough. Someone who was speculating in the housing market would wait out the 2 years and 1 day, and then they would flick off the property. That was the advice that we got in the committee. I do want to be absolutely clear. The existing brightline test and, indeed, what is contained in new Part 4 do not apply to the family home. They do not apply to the family home. This is only about speculators—about those who own more than one property and then move them on within the 2-year period, as it is now, and the 5-year period that we want it to be.

This is a vitally important measure around housing affordability. Speculators have a disproportionate impact on the housing market. They are pushing out first-home buyers from getting in and building up the Kiwi Dream, which we know has been so important to New Zealanders. The Government got that. It got that, to the extent that it needed to be seen to be doing something. As with all of the Government’s initiatives in housing, this is about how little it could do to get away with being seen to be doing something.

The Government rushed this out in May 2015 and said: “This is what we’re going to do.” It was an inadequate response then, at a time when the level of investor activity, particularly in the Auckland housing market, was lower than it is now. Now we know that nearly one in two purchases in the Auckland housing market are being made by investors or speculators. When the brightline test came in, it was just under 40 percent. The Government has put this in place. It has been an inadequate measure. It is a step forward, in terms of cracking down on speculators. There are more things to be done.

But this is an opportunity. I want to make clear that we are deadly serious, on this side of the Chamber, about these amendments we are putting forward. These are the policies we think are needed to get more affordable housing, and we want to have a debate about it because the Government has had its head in the sand for too long about the importance of these issues.

I want to pick up where my colleague Grant Robertson left off, around new Part 4, and the amount of information that we have around what the effect of this legislative amendment would be. We are reliant on the analysis that the Government originally undertook when it implemented the 2-year brightline test. Of course, as those who are familiar with regulatory impact statements will know, usually we are given an indication of the range of options that were canvassed by the Government. Actually, to be honest, even when the Government has already got an idea of where it is going to go, it is incumbent on officials to provide a range of options, points of comparison, to understand whether or not where you have landed is going to best give effect to your goals.

I went back to the regulatory impact statement, which Grant Robertson touched on a little bit. What is phenomenal I think, really, is the lack of information in this regulatory impact statement around the alternative options. The Government said, right from the outset, in this regulatory impact statement that doing nothing was not an option because the Government already said it was introducing something. So a press statement had gone out, the Government was introducing a brightline test, and then it was a matter of doing the policy work. When trying to measure where most of the sales sat in Auckland and when the houses were sold—within 1 year, 2 years, or 3 years—the share of sales within 1 year was roughly 8.4 percent. I am assuming that might be as a proportion of the total sale price, because we have information in the next paragraph down that says that between 2009 and 2013, 59 percent of all new titles were disposed of within a year within Auckland—59 percent is a huge amount—and 29 percent of new developments in North Auckland were traded within 3 months.

The statement then goes on to talk about the share of sales between 3 and 5 years. That is the only area where we have any data, though. When you flick over, into the regulatory impact analysis—and this is important because here we are proposing in this amendment to move from 2 years to 5 years—the only two options in the regulatory impact statement were option 1, which was a 2-year brightline test, and option 2, which was a 3 to 5-year brightline test. So it was an option that was on the table. That is interesting, of course, and useful for us, but let us delve further and see what level of comparison and detail there was, because we are now on new Part 4, taking option 2 from this regulatory impact statement.

From the outset option 1 was the officials’ preferred option, but where I get confused is that it is not entirely clear to me how that decision was made. There were three policy objectives with the brightline test: (a) provide an easier rule for the Inland Revenue Department (IRD) to enforce, to target short-term speculation—so that is about ease of implementation—(b) minimise the number of sales made taxable that were required without an intention of resale, which is difficult to determine, and I do not think you can simply say that because we have got a greater percentage of sales we are, therefore, potentially reaching purchases that were made without the intention of sale, so a very arbitrary decision that you make just looking at numbers; and (c) minimise compliance costs for taxpayers in order to comply. So those are the three tests. You would think that the objective would be to go through option 1 and option 2 and say which best meets those objectives.

But when you look at the analysis for option 2, which was the 3 to 5 years—which is what we are proposing here—it says in paragraphs 29 and 30 “This option would create a bright-line similar to option 1, however with a period for the bright-line being longer at potentially three or five years rather than two years. This option has similar impacts as option 1, but with greater effect owing to its longer period.”—that is a given—“It would best meet the objective of creating an easy to enforce rule and would have the greatest positive fiscal and administrative impact.” So on at least two of the policy objectives that were set out by IRD, option 2, or the 3 to 5-year brightline test, had already received a tick—a clear, definitive tick—when compared with the preferred option. But here comes the counterpoint, which is the important one. “However, this option has the greatest risk of capturing sales that were acquired without an intention of resale.” But my point here is there is no data, there is no analysis, that really quantifies that or that puts any detail behind that—[Bell rung] Thank you, Mr Chair. Thank you for not disturbing my flow.

There is nothing that tells us really anything beyond just an assumption that because it is longer and there is a greater number of sales, by default that meant it would be capturing houses that were purchased without the intention of resale. How do we know? We do not. There was no qualitative analysis around that assumption, and yet that one line was the basis on which the Government made the decision to go with option 1, which was a 2-year brightline test. That one line—I will read it again: “However, this option has the greatest risk of capturing sales that were acquired without an intention of resale.” As a result, this is not the Inland Revenue Department’s preferred option. That is it—no data, no analysis.

I mean, I guess to be fair, I want to go just a little bit further, because there was a table provided in the regulatory impact statement that, again, actually set out its objectives, which are fiscal, economic, administrative compliance, fairness, and the impact. It went through both of these options.

Just to further highlight that I am not misrepresenting what has happened in this regulatory impact statement, I want to read that for the 3 or 5-year brightline test, the department acknowledges that it “Best meets objective (a)”, that it “Partially meets objective (c)”, which is what the 2-year one did as well, but it “Least meets objective (b)”, and that was the one around capturing sales—again, though, no data. It admitted it had no estimate of the revenue gain that would be made, and that is interesting, because if you cannot estimate the revenue it will gain, you cannot estimate the number of sales that would fall into the 5-year category, which, again, highlights that the department actually did not know that it would capture unintended sales. It said: “This option would have similar lock-in effects to option 1. This option would have the greatest impact in reducing the administration costs involved in applying the ‘intention test’ [and that it] Provides the easiest to enforce measure of the options.” In fact, I would have to say that if you did not have the subjective statement in there—the bracketed statement around option 1, “This is Inland Revenue’s preferred option.”—and if you read this document without that bracketed paragraph, then, actually, you probably would think that it would come down on the 3 to 5-year option. That is what the evidence and the objective test it set for itself would tell you would be best to do.

I want to come to consultation, because that is what is so fantastic about this amendment. We are putting forward on the Table an amendment here to extend the brightline test to 5 years, which has actually, really, already gone through a select committee process of sorts. It has had submissions, which is more than what we had for the debate on the bill so far. So we did not have select committee papers—sorry, I should clarify. We did have an issues paper released by Treasury and Inland Revenue Department. We had an issues paper that went out on the brightline test—

💬 Chris Bishop: That’s right—that’s right.

—on 29 June 2015. There were 14 submissions that were received. I know Chris Bishop will know these submissions intimately, so he will be able to tell the Committee that there were as many submissions promoting a 5-year brightline test as there were supporting a 1-year brightline test. There were only 14 submissions, however—it has to be said—but at least that was more submissions than on any other part of the bill that we have debated in this Committee so far. So there was a submission process and there was support for extending the brightline test to 5 years. And, in fact, by and large, again, those policy objectives—as I set out—at the beginning of the regulatory impact statement were, most submitters seemed to accept, largely achieved by the proposals that were being put forward by the Inland Revenue Department in its issues paper.

I really just want to conclude by highlighting again that the basis on which the Inland Revenue Department and the Government settled on a 2-year test had no data. It had no evidence. All we know is the percentage of sales within that period. I know of houses in Auckland that have sat empty for more than 2 years simply to accumulate capital gain. They were not even bought as rental investment properties, they are not even occupied by people who desperately need houses, and they have been that way for more than 2 years. If we want an effective brightline test we should be sending a clear message: a 5-year provision. That is exactly what new Part 4 would do. It would do more to improve affordability and access to the market for first-home buyers than anything else in the bill that the Government has put forward.

I first became Green Party co-leader in mid-2009. In 2010, in my second major speech, I announced the Green Party commitment to a capital gains tax, excluding the family home. It came after reviewing work that had first been started by Rod Donald, actually, when he was here. Even in those early days, the Greens were looking at the best kind of tax regime to both help provide income to the country as a whole—to build a fair tax system on which all New Zealanders could rely—and help manage speculation in the housing market. When Rod Donald proposed a capital gains tax, it was for those reasons. When I proposed it in 2010, it was for those reasons. And here we are again, having an opportunity to put in place a more comprehensive version of the capital gains tax than is currently in law—because, of course, the brightline test is, essentially, a capital gains tax, but National does not want to say it. We all know why that is.

💬 Jacinda Ardern: Shh!

Yes—shh! Do not tell anybody! It is also why it is, unfortunately, so weak.

So the Green Party is very pleased to support this provision, which will extend the brightline test—capital gains tax—to 5 years from 2 years. This is critical. It is a critical tool in the cooling of the housing market. We all know that we have to use every possible tool available to us to deal with the housing crisis. We also know that a capital gains tax will have a different kind of effect over time, once properly introduced. A proper one—a good one—will provide an almost instantaneous cooling of the growth in house prices in the housing market, in the short term. That is a good thing. That then helps provide more fertile ground for some of the other tax changes that need to come into place to have a longer-term effect. On top of that, you are also building more homes, like we discussed in proposed new Part 3 of this bill around the 10,000 homes a year—also building more homes and bringing them online. So there is a whole range of steps that need to be taken, of which a proper capital gains tax—excluding the family home—is a critical part. I am very pleased to have an opportunity to discuss it again and perhaps even to improve the brightline “capital gains tax” test that is in the current law.

This is critical when we see the data that is coming out about speculation in the housing market. Investors make up around 45 percent of house sales nationwide. There is a little bit of flexibility in that number from month to month, but none the less investors are a significant part of the market across the country. In Auckland, about 50 percent of the housing market are investors, and they are driving ordinary people who are just moving from house to house as a natural part of transitions in their lives and first-home buyers out of the housing market. In the 1980s and in the 1990s the proportion of investors was never this high, and the reason why it is so high today is that we have a tax system that provides huge opportunities to investors by taking those opportunities away from ordinary New Zealand families. So we have an obligation, in Government and in Parliament, to manage our tax laws effectively so that they provide a fairer approach—so that we get the right benefit in the right places. That is what good governance is all about.

We know that mortgage lending is now well over $200 billion. That is the highest it has been since May of 2008. Those of us who were around in May of 2008 know that that was just before the global financial crisis hit. We have not had a rate of borrowing for mortgages in this country as high as this since just before the global financial crisis. We cannot continue to allow investors and speculators to dominate the housing market, not only locking out other homeowners and young families but actually putting the entire economy at risk. More and more economists are saying that the speculation in the housing market is putting the entire economy at risk—not just those in the housing market—so we need to keep looking at, reviewing, and making changes to tax law and regulation to make sure we have got the settings right to promote the best possible housing opportunities for everyone. That does include, to some extent—

I raise a point of order, Mr Chairperson. I draw your attention to Standing Order 302(3) and ask that you rule this amendment out and end the debate on it forthwith, on the basis that it is outside the scope of the bill. I understand that this is an omnibus bill and that there are parts to it that are quite disparate, and, therefore, the scope of debate and the amendments that can be tabled will be necessarily broad. But this is an amendment, effectively, to a tax measure—a revenue measure. It has been suggested to me that the reason this could be in scope is that the intention of that measure is to improve the affordability of housing, but I have checked very carefully and in the time available I could not find any reference to the fact that the brightline legislation, the Taxation (Bright-line Test for Residential Land) Bill, when introduced in, I think, about May 2015 and then passed into law, had any reference to affordability as that bill’s goal. The goal of that bill was to ensure that the right amount of tax was paid in the right circumstances, and on that basis I would suggest to you very strongly that this debate is completely out of scope with the bill that we are considering in Committee.

The Standing Order that the Minister just quoted, Standing Order 302(3), refers to local and private bills. It does not apply to Government bills.

Speaking to that point, I would beg the Committee’s indulgence on that. Without wanting to throw the Clerk’s Office under a bus, that was the reference that I had. But I know, as does the member—who raises a sage point—that the Standing Orders are very clear about what the Committee can and cannot debate, and the amendments, which any member of the House is able to raise, need to be in scope.

Speaking further to that, I say the point of order that the member has made—he may have another Standing Order he wishes to rely on, but that Standing Order he quoted does not relate to this bill, so we are happy to continue the debate while he does a bit more homework, if he wants to.

Members, I have considered the point of order raised by the Hon Michael Woodhouse and those points in reply by Chris Hipkins. My view is that it does appear to me—and, sorry, I have also taken some advice from the Clerk’s Office—that the intention of the brightline test is to stop the turnover of houses so quickly and to maintain a level of control on housing prices. I am prepared to allow the debate to continue at the moment and rule it as in scope, but I do have, alongside that, a parallel issue to raise with the House, and that is that the scope of this particular part as introduced is very narrow. So I am not going to allow members to carry on, effectively, just rephrasing the contributions of other members. I cannot see this debate on this part lasting very long at all.

I raise a point of order, Mr Chairperson. Firstly, I would like to make a clarification and an apology to the Clerk’s Office, actually—the reference to Standing Order 302(3) was mine. The correct Standing Order is Standing Order 302(2).

While I am on my feet, can I just seek a clarification that your ruling then means that it is your considered opinion that the purpose of the brightline test legislation was indeed around housing affordability and, therefore, the amendment is within scope?

Knowing that that was not a challenge to the ruling but a seeking of clarification, my ruling is that the amendments are relevant to the subject matter of the bill and are consistent with the principles and the objects of the bill.

I promise that I will be speaking directly to this new part of this bill, which is extending the time to dampen the speculators’ available time when they have to pay tax when they onsell a second, third, or 20th property. I want to speak specifically from my own experience as a renter in Manurewa. This part of the legislation would directly impact on my experiences and those of others in my community.

I think for about 3 weeks now we have been in our new house. We were forced to move from our old rental and into a new property because the owner of the house gave us notice because they wanted to sell the property. As anyone can understand, being forced to move on from a rental property when you are not quite ready to is incredibly unsettling—not so much when you are an MP who has status and income, but hardly anyone has that. So this particular part of the bill is of huge concern to me.

I do want to refer to remarks that have been made by me in the Chamber earlier today about displaying too much emotion. This Government is disconnected and it does not like to be shown up for its lack of emotion. The reason why I am emotional about ensuring that all New Zealanders have a secure property—which is why dampening the market, as in what this new part of the bill would help do, is incredibly important. Part of the connection is because I am in the middle of that situation. I am living in those communities. I am experiencing it myself, albeit from a privileged position.

So I just want to continue, and say that we need a Government that understands that homes are for living in. Oh, by the way, Minister Brownlee needs to catch up—I have been sanctimonious long before now. We need our Government to understand that homes are for living in, so we will be proudly supporting this amendment, even though the Green Party would also like to extend it further, so that any second, third, or 20th property is subject to a capital gains tax. We are firmly on the side of New Zealand families and not speculators, which is where this Government is standing strong. They are out there. If there was a hīkoi tomorrow by developers up Queen Street, you would see the National Government waving the flag—

The CHAIRPERSON (Hon Chester Borrows): Talk to this part.

Kia kaha, developers. Fair enough. OK, so that is where this Government is standing.

Some of the objection to this new part, apparently, from the Government, to extending the brightline test is because of economic concern. Has the Government seen its economy lately? It is not doing so well, so I do not know why the Government comes up with these economic concerns when everything that it has done has ruined our economy, for people and for our planet. Has it actually seen the economy lately? So, Mr Chair, I do thank you for allowing me to get up and talk about how important this is.

Manuwera and Ōtara—even though, nationwide, investors are buying more than 50 percent of properties, in particular communities it is higher. It is higher. When my house was being sold, the realtor sat at my table, looked me in the eyes, and said: “You know, you should be fine, Marama. You shouldn’t have to move. Do you know that over the past few months over 90 percent of the properties being sold in Manuwera, Marama, have been to sold investors? You’ll be right. You won’t have to move.” I swear that this is what I was told, to my face, at my kitchen table, as the realtor tried to reassure me and my family that we would not have to move.

Over 90 percent of the properties he was observing as a real estate agent in Manuwera were being sold to investors, because our poorer communities are funding speculators. Who are the bludgers here, seriously? Our poorer communities are allowing the wealth accumulation of the speculators, the very ones whom this National Government is standing beside.

This new Part 4 proposed by Phil Twyford—it is important that the Committee adopts this measure, because it actually gives effect to the purpose of this bill. The purpose of the bill is to support the wider Government programme of work to increase the supply and affordability of housing. I am prepared to accept that Part 1 goes some way to increasing the supply of housing, but where this bill, overall, is deficient is in increasing the affordability of housing. That is why new Part 4, which extends the brightline test from 2 years to 5 years, is important as part of a suite of measures to actually tackle the issue of affordability.

The purpose of this bill is sound: to deal with both supply and affordability. As I say, it goes some way—a small way, we would argue on this side—towards dealing with supply, but does not do very much about affordability. There is no doubt that one of the drivers of the increasing levels of unaffordability—particularly in the Auckland housing market—is speculation, where people are purchasing houses for the sole purpose of onselling them at a profit. Stepping back and looking at things through a purely economic lens, that makes quite a lot of sense.

The housing market is, in the Minister for Building and Housing’s own words, “out of control”. House price inflation in Auckland is rampant, there is capital gain to be made, and, actually, 2 years is not a terribly long time to wait. You can put some tenants in there. You may not even bother putting tenants in there, because the potential gains are so significant that a lot of landlords would actually say: “Look, I’m not going to risk putting people into the property. They may damage the property. I’m not going to risk putting people into the property. I’m just going to sit on it for 2 years, and then I’ll get my tax-free gain after that period of time.”

So it is actually necessary—and my colleagues have discussed some of the advice that was given to the Government on this—to extend this brightline test out to a period when it is actually going to influence behaviour. At the moment we are not seeing any influence on behaviour. In fact, the Minister of Revenue just came to the Chamber and said that it was never intended to influence behaviour. That is a surprising and astonishing admission from the Government that its current brightline test is not having an impact on the affordability of housing.

We need to make this move. If the Government is serious about improving the supply and affordability of housing, then we have to extend this brightline test to a period that is actually going to change landlord behaviour and is actually going to encourage people to tenant their houses, make them available for people, and hold on to them for a long period of time, not just flick them for capital gain. That should then go some way to having an impact on the overall levels of speculation in the Auckland housing market and in other markets around the country, and have an impact on affordability.

No one is saying that speculation is the only driver of housing inaffordability. It is not the only driver of house price inflation, but, as part of a suite of measures—and members on this side have already attempted to introduce one measure through new Part 3, and I know that other measures are on the Table. As part of that comprehensive package of measures, this change to the brightline test will have some impact on speculation, and having some impact on speculation will have some impact on housing affordability. That is what is missing from this bill.

There is actually nothing in the legislation for special housing areas that puts a caveat on what you do with a house in a special housing area once you have bought it. So, actually, right now someone could buy a house in a special housing area, flick it after 2 years, and get tax-free capital gain. We actually need this measure to make special housing areas work. It is entirely appropriate that it be included in this piece of legislation. If the Government was serious, then it would get on board with this. It agreed with having a brightline test. The Government introduced it. It set it at 2 years. Why not make that measure do what it is intended to do—set it at 5 years and have an impact on affordability.

I move, That the question be now put.

I appreciate the chance to take a call on new Part 4 of this legislation, which is yet another amendment from my colleague Phil Twyford that has the aim of putting some provisions into this legislation to make housing affordable. This is a reasonably simple amendment. It contains a number of clauses and amendments to the Income Tax Act of 2007. What it does is it amends a number of sections in the Income Tax Act text from “2” to “5”. This may not seem like a large measure, but it is a very important measure. The reason why the amendment is from 2 years to 5 years throughout all the clauses in this amendment that Phil Twyford has put up is that that is a period of time that actually may make an impact.

When the original legislation that Mr Twyford’s amendment is seeking to amend was put through under Budget urgency, it was done so in haste. It was yet another band-aid - type approach to housing that we have become accustomed to seeing from this Government. What the Government did have at the time, however, was Treasury advice that in order for the brightline test to actually make a difference and do something in terms of cracking down on speculation, it did need to be for a period of at least 5 years. This is not something that the Government listened to. Instead of making the real kinds of changes that may do something about making housing more affordable and cracking down on housing speculation, as could have been the outcome of what the Government did, it went for the half measure—well, the quarter measure, as my colleague beside me, Kris Faafoi, may say.

💬 Kris Faafoi: A measure.

A measure—I will leave it at that, Mr Faafoi. The Government did not go and put in place a provision that may have made a real impact. Instead, we had this. If you have a look at the advice that the Government did have at the time—and my colleague Grant Robertson spoke about this in his earlier contribution. At the time that this was put through—

💬 Hon Member: Consistent.

Nothing if not consistent, is Mr Robertson—that you have been speaking about this for a period of time. It was not just Treasury that slammed the idea of making this provision only 2 years; actually, a number of tax and legal experts did at the time, as well. It is reading through this that has led my colleague Mr Twyford to put up this amendment—to actually bring into this piece of legislation, which we are in the Chamber to debate, some provisions that would mean that the brightline test would crack down on speculation, would do something around making housing more affordable, and would do that.

If you look at the modelling that Treasury did back in 2010, which is really the only modelling that we could find that could be used, you can see the very minuscule impact that the Government’s decision to limit this to 2 years was actually going to have on the problem. Based on that 2010 modelling, John Key and this Government’s brightline test were likely to impact a maximum of only 1,000 of the nearly 80,000 house sales each year, and raise just over $18 million. This is just window dressing. This is a Government pretending that it is doing something about what is clearly a crisis in this country, and that is housing affordability. It had the opportunity to do something real, it had the opportunity to do something substantive, but is that an opportunity that this Government chose to take? Unfortunately, it is not.

Instead, what it has taken is this amendment from my colleague Phil Twyford, which goes through these provisions of the Income Act and makes that change from 2 years to 5 years. It is a significant set of amendments that will mean that the brightline test may actually do what it should have done in the first place—that is, crack down on speculation. Cracking down on speculation—actually doing something to address the problem—would actually cut to the core of addressing the real issue that we have to address, and that is housing affordability. Nothing in the bill that the Government has bought to this House addresses the issue of housing affordability. It has taken amendments from this side of the House—

I move, That the question be now put.