[Tomorow] I am to speak to the AGM of the Wellington Housing Trust . They’ll be genuinely concerned about housing our poorest .

If Bernard Hickey’s post  is right, perhaps our poorest will be able to squat in empty homes in a few years. The Baby Boomer generation’s economically contributing children are being ejected (those with iinternationally valued skills). They put down roots and make lives elsewhere. They won’t be here to buy the Boomers homes at their artificially inflated values. 

Nor will they come back to share a land with their uneducated peers not valuable enough to be wanted internationally, when the voting Boomers are still trying desperately to find enough taxpayers to support their age subsidies and services.

Bernard’s post is vintage stuff.

The unprecedented housing boom between early 2002 and November 2007 has essentially triggered an enormous intergenerational transfer of wealth. The few  in the 18-45 generation who managed to take on enormous debt to buy a house must now live with it for decades. It will cripple their lifestyles until they retire, particularly now other costs such as petrol and food have risen sharply to wipe out any meagre cushion of spare disposable income some may have had. The rest who couldn’t afford to buy are now locked out.

Yet the Baby Boomers who already owned houses with low debt have seen an enormous increase in their personal net wealth because of the rise in house prices. The chart above shows that the value of New Zealand’s housing stock rose around $350 billion to around $600 billion over that five-year period of the housing boom.

The guts of the story is this. Baby Boomers got rich at the expense of some of the next generation taking on enormous debt and at the expense of the rest of that next generation knowing they will never know what it is like to own their own home.

If the grandparents I’m meeting as I canvas Wellington Central were adept on the internet. I’d urge them to read it to understand who’s causing their sorrow over the oceans between them and their grandchildren –

In essence, central and local governments arranged a brace of policies and tax incentives so that the value of the assets they personally held rose sharply. The opening up of new land for housing was restricted to protect the value of existing housing, boosting land prices. New building regulations were changed and the debacle of leaky buildings increased new home construction costs sharply.

The coup de grace was the introduction of the 39% tax rate, which sparked a frenzy of property investing through family trusts and LAQCs (Loss Attributing Qualifying Companies). These structures and that investment was aimed at avoiding the new rate and was bigger than any other investment craze seen in the history of this country.

And Bernard’s prescription –

First, they need to pass a capital gains tax on investment properties. Let’s stop mucking around. It distorts our investment appetites. It is unfair that we don’t have one. It should be imposed. The collective groaning, wailing and gnashing of false teeth will be enormous.  But it must be done or else (I’ll talk about the “or else” later down).

Second, the highest personal tax rate, the family trust tax rate and the company tax rate should be equalised to a single rate. My pick would be 30% longer term, but find a single rate and stick to it. That would end this nutty obsession with family trusts and LAQCs at the stroke of a pen, sucking some of the false demand for residential investment property out of the house price bubble.

Finally, the government, city and regional councils must aggressively open up new land for new housing and fund the infrastructure of roads, rail, parks and schools needed to support those new houses. We need a supply shock to help drag these house prices lower."

Comments on Bernard’s post take issue with some of his prescription, including the capital gains tax, contributing to a worthwhile discussion.