The problem afflicting first-home buyers in Auckland is essentially the product of an under-supply of affordable housing. The logical solution to their woe involves boosting that supply while, at the same time, reducing demand. Any other approach will be counterproductive, especially one that makes it easier for people to pay existing prices. This merely promotes increased demand, which will either sustain high prices or drive them further skywards. In that context, the Government's latest response to the problem of housing affordability is as ill-directed as it is insipid.
The policy, announced at the National Party's annual conference, eases qualification rules for a government subsidy under the KiwiSaver and Welcome Home schemes. Young buyers will, however, have to save a 10 per cent deposit before they qualify for either scheme. The Prime Minister estimated the changes would fund $64 million extra in first-home buyer subsidies over the next four years.
That is a modest sum. The saving grace is that the increased demand from first-home seekers will be so small that any impact on affordability will be correspondingly minor.
It is difficult to dissociate this initiative from imminent action by the Reserve Bank to curb the number of low-deposit mortgages. John Key talked of exempting first-home buyers from this restriction, but the bank governor has made it clear they must be included. The Government has responded by offering a compensatory carrot to some of that group of home-seekers. If, however, it is really intent on making it easier for young buyers in this sort of way, the inherent risk demands that such an initiative must be offset by measures that produce an increased supply of affordable housing.
Unfortunately, the Government response to this core shortcoming has been neither urgent nor resolute. Its approach centres on boosting the amount of land available for housing development, a long-term proposition that offers no immediate solace for first-home seekers. Other elements of this policy are being included in planned changes to the Resource Management Act. As part of this, for example, subdivisions will become non-notifiable unless they are clearly not of a type anticipated by relevant planning and zoning.
Most young buyers will surely find this approach less compelling than Labour's plan to build 10,000 affordable homes every year for the next 10 years. That tackles the problem of under-supply in the most direct of manners. Nor does the Government show any appetite for lowering demand, another side of the affordability equation. It has ruled out reducing both the participation in the market of property investors, through the introduction of a capital gains tax on investment property, and foreign investors, through a rule forbidding non-residents buying existing houses.
None of these measures are, individually, the magic bullet that would solve the affordable housing problem. But each could play a part in ensuring that demand runs alongside supply. Less money would be driving up house prices, and supply would be increased. Since coming to power, however, the Government has done little except tinker around the edges of the issue.
At National's conference, the Finance Minister, Bill English, talked of reform being consistent, considered and constant, although in small doses. That approach has led to substantial change in the laws governing resource management and industrial relations. Further chapters to this process in both arenas are currently under way. But in the area of housing, the Government's small doses have wrought no discernible change. And as it has fiddled, young house-seekers have become increasingly disadvantaged. Yet another false start does nothing to improve their lot. Indeed, it will succeed only in pitching some of them headfirst into an overheated market.