Prime Minister & former Finance Minister Bill English said it last Monday and his party came it again yesterday: the Government is propping up the rental market and, yesterday, it would make more money available to first-homebuyers so they can pay a deposit.
The Stuff website took the first story from one side, leaving the further consequences alone.
Image above: Prime Minister Bill English during TV3’s leaders’ debate.
Subsidies flow straight through
Both policies are widely acknowledged ways of feeding landlords & home sellers – though ostensibly supporting impecunious buyers & renters. I wrote in 2009 that Australia’s Housing Industry Association criticised that country’s first-homebuyers’ grant – introduced in 2000 to overcome the impact of GST – because it reduced affordability because it flowed directly through to the property seller’s bottom line.
Mr English said in the second televised leaders’ debate on TV3 that the Government spent up to $6 million/day propping up New Zealand’s private rental market. The $2.3 billion/year in rent subsidies supported 60% of private tenants, and Mr English argued it was helping to keep many Kiwis out of poverty.
Social Housing Minister Amy Adams said the Government supported 320,000 of New Zealand’s 550,000 rental households.
Look at these subsidies another way: What would happen if they weren’t paid? Beyond the initial assumption that all those no-longer-subsidised tenants would be evicted, who would pay the rent? Their places would not be immediately filled.
The argument here is that it is not the tenant being subsidised, it’s the landlord. The consequences of ending the subsidy would, in due course, be that rents would fall so landlords could get tenants. That, in turn, would affect rental yields and, again in due course, would tell both prospective landlords & banks that the prices of houses intended for rental were too high.
All round, in due course, adjustments would be made.
Homebuyer support runs same course
Yesterday, Ms Adams and Building & Construction Minister Nick Smith (now spokespersons in the election campaign period) said National would double the financial support available to first-homebuyers when buying an existing house, and increasing it for new builds.
Ms Adams said of the measure to make it easier for first-homebuyers to get a deposit: “National believes every New Zealander should be able to buy their own house if they want to – so we are building on our existing suite of measures to support first-homebuyers.”
National would raise the Government HomeStart grant for a couple by $10,000 to $20,000 for an existing home, and to $30,000 for a new-build.
“The additional grants mean there is funding to help a further 80,000 people into their first home over the next 4 years, on top of the 31,000 people the scheme has already helped,” Ms Adams said.
Building and Construction spokesperson Dr Nick Smith says HomeStart Grants complement other Government measures to support first home buyers, including:
Welcome Home Loans allow first-homebuyers to access Government-backed mortgages with a 10% deposit, and KiwiSaver FirstHome withdrawals allow them to access all of their KiwiSaver funds to put towards a deposit.
Dr Smith added these available funds together: “Take a couple on the average wage in Auckland who have been in KiwiSaver for 5 years and are looking to buy their first home. Between the $20,000 HomeStart grant and their KiwiSaver withdrawal, they will have around $60,000 for a deposit for an existing home.
“Add in a Government-backed Welcome Home loan, which means they only need a 10% deposit, and they have enough for a house worth up to $600,000 – the Auckland HomeStart cap for existing homes – without needing other savings.
“That’s significant support for those New Zealanders, particularly given 18% of home sales in Auckland in the past year were below $600,000.
“If that couple lived in Palmerston North, they would have enough for a 20% deposit on a $300,000 house, without the need for a Welcome Home loan.”
Ms Adams said National would also simplify the process for borrowers, combining HomeStart grants & Welcome Home loans into one HomeStart product, so first-homebuyers could get all the support available to them from one place.
“We will simplify the application process for Welcome Home loans to allow accredited banks to approve these 10% deposit, Government-backed loans on the spot, rather than going through an often time-consuming process with Housing NZ,” Ms Adams said.
Dr Smith said National’s policies would help 200,000 new houses be built over the next 6 years – the equivalent of 4 extra Dunedins.
“We are increasing our support for first-homebuyers and making it easier to access, to further help young New Zealanders achieve their dream of owning their first home.”
The changes would come into force on 1 January 2018 and have been priced at $74 million/year, to be met from the 2018 Budget allowance. Costs in 2017-18 would be met from the between-budget contingency.
If – as Australia’s housebuilding organisation believes, and I understand numerous NZ Treasury recommendations have agreed (sources to come) – feeding the borrower or prospective tenant actually feeds the seller or the landlord, what is the outcome? Higher prices.
The Government has been feeding inflation via subsidies – and National intends to lift that inflationary input.
Stuff, 6 September 2017: PM Bill English says Govt spends billions propping up the private rental market
12 October 2016: First-homebuyers hit KiwiSaver for over $500 million in deposits
25 August 2014: National promises easier access to first-home money, Pavletich says it’ll fuel housing inflation
1 October 2013: Housing NZ offers first-homebuyers deal to buy empty old provincial stock
22 May 2015: Smith launches fund to build houses on Government land
27 March 2015: Parliament passes KiwiSaver HomeStart Bill
29 July 2013: Shearer says Labour will block overseas speculators; plus some extra statistics
23 October 2009: Australian incentives boost construction, hurt affordability
Attribution: Ministerial/party releases, Stuff.