May 22, 2023


New Zealand has an issue of lack of housing affordability. Rampant speculation, restrictive urban planning laws, and massive population increases in urban areas have caused real house prices to increase in New Zealand. The major causes of this situation are

  1. Capital taxation inconsistencies
  2. Infrastructure issues.
  3. Demand and supply issues.

Inconsistencies in capital income taxation are a major cause of the housing menace being experienced in New Zealand. Policies targeted at addressing infrastructure also play an important role in increasing property prices. The likelihood of an average national owning property is declining and government intervention is needed to curb housing inflation and to create affordability in the housing options.


Capital taxation inconsistencies are an important cause of high property prices. The tax reforms that occurred in 1989 created an environment upon which property income got taxed at lower rates than incomes on other assets thus giving property income a tax advantage over the other assets. Those who owned houses were taxed lightly and landlords who borrowed to invest received subsidy in the created environment. On the other hand, inflation on interest earning securities became taxed causing real investment income tax to be high. As a consequence, investors over-invested in property driving property prices off the roof. While homeowners at the time of the changes in taxation benefited greatly, it created a negative intergenerational transfer to non-home owners of subsequent generations in form of very high property prices. Theorists argue that in circumstances where the price elasticity of the demand for property is not extremely high, as is the case in New Zealand, circumstances in which property taxes differ from taxes on income from other assets will cause the property prices to capture the differences, and this appears to have eventuated.[1] Therefore, the homeowners at the time if introduction of this tax system benefited at the expense of future generations.


The supply/demand ratio in New Zealand is too small.  Demand presently is influenced by a multitude of factors i.e.

  1. Strong immigration
  2. Natural population increase
  3. Existence of an ideal climate for speculative investment

Immigrants coming into New Zealand are likely to purchase or rent a house in New Zealand while at the same time selling their houses in their country of origin. This increases a demand of housing without necessarily increasing the supply of housing creating an excess in demand translating to high prices of houses in New Zealand.[2]

In New Zealand, there is a high birth rate as compared to the death rate. This therefore translates to many families remaining in the same house after their baby is born or selling their house to buy a new bigger one to accommodate the new baby.

There is a rise in speculative investments in the housing market.  The majority of this investment is coming from speculators who buy in anticipation of a price increase and sell once the value of the house becomes inflated. New Zealand has a low interest rate and no capital gain tax. This creates a perfect environment for speculators who end up making a notable low risk profit by purchasing property in speculation of inflation.

The expectation to the high demand problem would be that an increase in supply due to the high prices as developers and investors try to bridge the gap in an attempt to maximize on the inflated profits. Investors however foresee a rapid downfall in the near future as a consequence of the current rapid increase in market prices. This risk extends to financial lenders as well who can’t justify lending to investors when there is speculation of future market downturn which would translate to debtor default for them.[3]

There exist very restrictive urban planning laws in New Zealand. Design requirements e.g. height limits and environmental performance requirements which further fuel the supply issue. There is also a notable shortage in the number of construction workers which further fuels the supply issue.


Restrictive urban planning laws further fuel the lack of housing problem.  Design requirements and environmental performance requirements hinder developers from investing in housing. There is very limited amount of land currently in development caused by the legal requirements and the shortage of construction workers needed.[4]

There exist too many unnecessary barriers to development in New Zealand. The infrastructure provisions available are prerogative of local councils, who face financial constraints and weak incentives to invest in amenities. Apart from rates, councils do not have any significant sources of income. To adequately maintain and create the infrastructure needed for development, councils would need to increase rates or cut spending on other local projects, or both. None of those options would be politically popular. Even just maintaining existing infrastructure is already proving the alterations needed in the infrastructure provisions will take a long time to implement.[5]


  1. Low economic growth.

Most household and homeowners acquire property at an inflated price. This translates to high levels of household debts as most households acquire these homes by borrowing from financiers.[6] When the prices of these houses eventually fall as they will inevitably, homeowners will have to sell their property at normal market values while they acquired these properties at an inflated value. Consumer confidence will fall leading to a decrease in consumption which will eventually translate to slower economic growth.

  • Social cohesion

The high price in housing has made crowded houses and homes more common. This poses the risk of high spread of infectious diseases especially among children, the elderly and people who have issues with their immunities.

Moreover, the inability to buy houses has caused homelessness among the elderly. Retired people and the elderly have less ability to live off of their savings and pensions and thus they end up relying on relatives to either house them or help them financially.  This further cements the vicious poverty cycle.[7]


  1. Housing assistant budgets.

In every financial year, the government allocates funds on various forms of housing subsidies. A considerable amount of the funds allocated towards these subsidies are budgeted towards the administration of these programs.

  • Income-Related Rent (IRR) subsidies

IRR refers to rent that is subsidized by the government in order to make accommodation more affordable for those on low incomes in public (social) housing. In most financial year, the government sets aside funds on IRR which assists households in social housing.

  • Accommodation Supplement (AS)

Accommodation Supplement is a weekly payment which helps people with their rent, board or the cost of owning a home. The AS in New Zealand is quite considerable. It is paid to residents who qualify in terms of housing costs relative to their incomes. You may get an Accommodation Supplement if you:

  • have accommodation costs
  • are aged 16 years or more
  • are a New Zealand citizen or permanent resident
  • normally live in New Zealand and intend to stay here
  • Are not paying rent for a social housing property. Social housing properties are provided by Kāinga Ora (used to be Housing New Zealand) and approved community housing providers
  • Home start Grant Scheme

These ones are advanced to first time buyers and they work to lessen the effect of the highly inflated market prices.

  • Emergency housing responses

In 2016, there was a rise in the number of homeless people. There were a lot of people living in cars and in the streets. In response to this, the government commenced an emergency housing response.


To further curb the housing menace in New Zealand, the following policies should be adopted

  1. Changes should be made in Land tax

Land tax should be introduced not only on residential real estate but also on owner occupied real estate. This will serve to tax income tax which is currently lightly taxed. This will provide revenue. This will further serve to devolve expenditure to local authorities and have them raise taxes to pay for this expenditure. Moreover, land taxes are likely to be capitalized into property prices, which would involve an intergenerational transfer from current property owners to future property owners While a land tax is likely to be equity enhancing, because it would reduce the extent that New Zealand’s uneven application of income taxes artificially raises property prices, ultimately the willingness of the community to alter the current pattern of intergeneration transfers is a political decision.

  • Introduction of higher social security taxes

As compared to other OECD countries, New Zealand has a larger income tax as compared to social security taxes. . In most countries, the amount of retirement income is dependent on the amount of social security taxes a person pays – and so not only is it necessary to record tax payments, but these countries have chosen to record a specific set of tax payments, those paid as social security taxes paid on labor income. If the social security taxes are made higher, then more funds can be allocated towards dealing with the housing menace.

  • Introduction of a compulsory saving scheme

A compulsory saving scheme should be introduced to deal with the issue of old age homelessness. The nationals should place funds in a scheme and these funds would be used to fund their retirements. These schemes improve the efficiency of the tax system, not only because such contributions would reduce tax rates on capital income, but because the contributions are incentive-compatible as people keep whatever money they place in their own accounts.

  • Abolition of the pay-as-you-go funded programmes.

Pay-as-you-go funded programmes that provide resources to older people result in intergenerational transfers from young people to older people, while pay-as-you-go funded programmes that provide resources to young people result in intergenerational transfers from old people to young people. These transfers are large and they make it difficult to change the expenditure programmes even though these changes are needed. Expenditure programmes that are funded on an internationally neutral basis would easily change these schemes thus breaking the chain of generational transfer.

  • Reforms on the unusual tax system.

New Zealand’s tax system has two big differences from the tax systems used in other OECD countries. The single biggest difference is that New Zealand raises an extremely low share of taxes from social security taxes. Social security taxes are typically levied on labor incomes but not capital incomes and thus are one way of taxing capital incomes less than labur incomes. In 2016, New Zealand raised about 1.1% of GDP in social security taxes (the ACC levy). The average OECD country raised 9% of GDP in social security taxes (see Table 1 and Table 2.) These taxes are largely used to pay pensions. One of the reasons NZ does not have dedicated social security taxes is that the size of pension receipts is unrelated to the size of the tax payments they have made.[8] In contrast, in most OECD most countries the size of the pension an individual receives depends on the tax contributions they have made over their lifetime.


In conclusion, the existing housing menace in New Zealand is highly perpetuated by intergenerational transfer where the capital resources were available to the older generations but the same have not been afforded to the younger generations. To remedy this, there is need for change in the taxation system.

[1] Krupp, J. (2015) The Local Formula: myths, facts and challenges, Wellington: New Zealand Initiative, reports-and-media/reports/the-local-formula/

[2] Stats NZ. (2017, August 21). International Travel and Migration: July 2017 – Media Release.

Retrieved from

[3] Parker, C. (N.D.). Housing supply, choice and affordability.

[4] Carey, D., & Barker, A. (2017, June 14). The downsides of New Zealand’s inflated house prices.

[5] Krupp, J. (2015) The Local Formula: myths, facts and challenges, Wellington: New Zealand Initiative, reports-and-media/reports/the-local-formula/

[6] Parker, C. (N.D.). Housing supply, choice and affordability.

[7] REINZ. (2017, September 15). Press Release – August 2017. Retrieved from


[8] The value of housing can be compared to other aggregates. In the March 2016, the latest year for which data are available, the value of property was $908 billion, or 69 percent of the value of net household wealth, $1311 billion. This includes the value of foreign assets owned by New Zealanders. The value of government assets was an additional $225 billion making the total value of foreign and domestic assets owned by New Zealand entities equal to $1537 billion. The value of assets located in New Zealand owned by New Zealand and foreign entities (including the New Zealand government) was $1696 billion. (The difference between $1537 billion and $1696 billion is the net foreign asset position.) Residential property is still the largest asset class in New Zealand when otherassets are taken into account

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