Housing and horticulture taxed
24 March 2021
The Government announced a housing package on 23 March designed to get New Zealanders into their own homes. To do this, further restrictions have been placed on landlords, the aim here being to drive the price of houses down.
Economist and commentator, Cameron Bagrie has predicted that these restrictions will result in landlords offering 10% less for a house. This reduction is driven by removal of mortgage interest deductibility from 1 October, meaning that landlords cannot off-set the cost of money they may borrow to finance the purchase of a rental house.
This is a major change to tax law and a worrying sign for all other enterprises. The ability to off-set the cost of production against taxation is a major incentive to undertake a business enterprise. Take that away and the incentive and the financial ability to go into business is removed. In practical terms, the taxation system has two purposes: (1) generating income for the Government; and (2) enabling businesses to continue to operate and expand, assisted by tax incentives and deductions.
There are other ways in which to reduce businesses’ ability to grow that are akin to removing taxation incentives, which are fully within the control of the Government. Over the past decade, horticulture has grown in value but not area by 64%. Each year, more than 2,000 hectares of farm land is converting to growing fruit and vegetables. As with all growth, there are some essential factors that underpin it. One of the key ones for horticulture is labour – seasonal and permanent.
Take away the labour supply and you have the same outcome the Government is trying to achieve with rental houses – there will be a decline. But enable labour supply and horticulture will continue to grow. In effect, not enabling sufficient labour supply is a non-productive tax setting.
There are two very basic human rights that all Governments prioritise: having somewhere for people to live and having healthy food for them to eat. Our Government’s housing policy announcement goes some way to achieving the first basic human right. However, it will need careful management to ensure that it does not plant houses where we need to plant vegetables.
A balance is needed between the two policies. Horticulture grows on less than 100,000 hectares and across New Zealand, only about 5% of land is suitable for horticulture. What we need to ensure is that housing policy does not take away New Zealand’s ability to feed our people. In saying that, we are not taking about a lot of land being set aside for feeding ourselves.
Some say that we should just import our food. Well, there is no guarantee that we will be able to import the food we need as the world’s population increases and climate change turns former growing areas into dry waste lands. For climate change mitigation, we should be growing our food as efficiently and as close to our cities as possible.
Pukekohe is perfectly placed to feed Auckland and is a very good area for growing: few if any frosts, good winter growth and fantastic soils. Pukekohe is one of the areas that we need to protect from housing, and prioritise for growing healthy food. The Government is working on doing exactly this but with the new housing policy announced yesterday, protecting the land we need for growing has grown even more urgent, least all we have is houses and no locally grown healthy food.
In closing, the Government’s policy and focus on sorting out our housing crisis is welcomed. In addition to resolving the housing crisis, the Government needs to ensure that we can feed New Zealanders healthy food, by making sure the land that is best for growing is used for growing and not houses.
We need both houses and healthy food and with appropriate planning, we can have both.