More evidence has been released showing how the Government earlier this year considered drastic solutions to try and solve the Auckland housing price boom.

Treasury papers already released showed that a 1% levy on all property bought and sold in Auckland was put up to the Cabinet but rejected.

Now, new Treasury papers show that a 2% levy on all new mortgages for investment property in Auckland and a change to allow only 50% of housing mortgage interest rates to be tax deductible were also proposed.

The ideas were proposed just four weeks before the Budget.

“The Ministers are considering various options for slowing down housing market activity in the Auckland metropolitan area

“All options look at the investor segment of the market. “

But what the Ministers were asking Treasury was not what the Prime Minister was saying in public.

On April 13 he told Radio New Zealand’s “Morning Report” that the high prices on the artificial boundaries of the metropolitan urban limit, were partly to blame for rapidly rising prices in Auckland.

He effectively ruled out any changes in immigration policy to tackle price rises, indicating he favoured possible action by the Reserve Bank to make it tougher on property investors.

“It might be an idea. I think those alternative tools in the toolbox are much better than blanket and wholesale rises of the interest rates which wouldn’t be justifiable given where inflation is at the moment.”

He said there were still many homes for sale in the $350,000 to $500,000 range in his own electorate, and with KiwiSaver Homestart, a couple could afford one of these homes.

But Treasury officials were saying that investors were driving about 40% of housing demand in Auckland.

“If government can successfully discourage investor driven demand without affecting the rest of the market, medium-term house price growth in Auckland may potentially be slower by 2.4 or 3.2 percentage points,” they said.

“The calculations assume that by eliminating investor demand there will be less price competition for home buyers.”

And they argued that it was taxation policy which was partly to blame for the Auckland prices.

Over the past five years costs on rental property had come to 2% of the property value while returns had averaged 4%.

“In 2014, the difference was even starker,” they said.

“The positive gap incentivises investment.

“Looking at the individual factors for the gap, we see the capital gains as a key factor making the property investment attractive “

So what treasury proposed was either a two per cent levy on all mortgages taken out for investment property or cutting the amount of interest payments allowed to be tax deductible to only 50%.

However they argued that the two per cent levy would need to be nearer 8% to offset capital gains of 15%.

Instead they preferred the cut in the tax deductibility allowance.

They said the change might make house price growth go to 5.6% as opposed to the five-year average of 8%.

“That would bring the cost of capital to 4.8% and make property investment unattractive,” they said.

There is nothing in the papers to say why the Government rejected this proposal but it is consistent with other moves by Cabinet which watered down the proposals on supplying IRD numbers on house sales and the “brightline test”.

It is clear that National is anxious not to upset the large number of its voters who own investment properties in Auckland.