Housing unaffordability in New Zealand

The present state of the housing market and the housing unaffordability in New Zealand is being talked about so much, I think any thing the Government will do to improve the situation will result in demand going up, pushing the prices further. That will be another short-term fiasco.

The demand pull in the housing market is due to different reasons, viz, immigration, overseas investment, New Zealand being a small economy with limited supply of houses, the unwillingness of Government to free land and rules to improve housing stock, the attractiveness of living in a peaceful country and of course the benefits of having rental properties. Inspite of high prices and higher cost of mortgages, people are compelled to buy houses, because they see that as their economic and social security. The demand pull has to be reduced by making available alternative investment opportunities. The stock market is small and shallow with very little movements to interest speculators. Tax regime is against savings and income levels are low.

The solutions could be
1. Tax incentive to save money. Tax rebates for interest and mortgage repayments.
2. More housing finance companies in the market to push down the rates
3. Asking Reserve Bank not to be too pre-occupied with inflation. Renting and interest costs are anyway too high adding to inflation.
4. Alternative investment avenues with tax concessions
5. Raising pay levels to reflect the efforts of workers and to keep up with international arena.
6. Subsidies to exporters.
7. Streamlining taxation to make more surplus available at the hands of people. With huge government surplus this is not impossible. Why should the marginal tax rate for individuals be 39% when the highest tax rate for companies is 33%. Is this not indirectly subsidising businesses when the reality should be other way around?
8. Development of other regions of the nation to reduce the pressure on Auckland area. Subsidies and tax incentives and may be migration assistance to people moving to other areas may help.
9. RBI or Governemnt intervention in foreign currency market like in USA, UK may be required to bring down the high dollor

All these will add to government costs, but a little bit of higher inflation may be the bitter drug required to bring the market to good health. Then the demand and supply position will correct itself over a period of time bringing some sense to the market.