John Armstrong on politics

John Armstrong is the Herald's chief political commentator

John Armstrong: Warning flashes from a housing nightmare

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Labour's on track, but Green plan should be put out of its misery.

Photo / Supplied
Photo / Supplied

Moments away; a world apart. So coos the sugar-encrusted, but hollow-sounding real estate-speak intent on seducing would-be home buyers and hard-headed investors into succumbing to the charms of life at Hobsonville Pt.

According to the project's advertising bumph, a world-class township for Aucklanders of "all ages and stages" is being built on 167ha of Crown land nestled on the Waitemata Harbour in the city's northwest.

Well, not all Aucklanders it seems. In spite of a Cabinet decision in October 2011 confirming longstanding intentions that there should be provision for state housing among the 3000 or so homes in the development, officials from the building and housing section of the Ministry of Business, Innovation and Employment last year deemed the commercial case for the Hobsonville project "does not envisage" the building of state houses.

The officials considered their decision was "appropriate and consistent" in part because the high land value would make for expensive state houses for which demand was not great in that part of Auckland.

Housing New Zealand's "customers" would have to be "imported" into the area. Moreover - and here the officials were really getting imaginative - Hobsonville's "peripheral" location and the lack of local jobs did not square with National's efforts to get beneficiaries back to work.

Whither the welfare state? National has already initiated a slow, but steady shift in the provision of social housing to community-based providers.

At Hobsonville, the real reason state rental housing was dropped was because of the Government's need to be seen to be doing something about housing affordability further up the income scale while maintaining the development's commercial viability.

The role of the state now is not to replace market mechanisms, but instead be a backstop when the market fails to deliver.

Both main parties are using the state in different ways to develop policy which helps not so much those on low incomes, but those on low to middle incomes achieve home ownership.

The reason? Housing unaffordability has reached that middle-income band. That is also where the great mass of votes resides.

The linchpin for Labour's plan - on which the Greens have piggy-backed - is the building of 100,000 affordable homes over 10 years at an average cost of $300,000 each.

National might have succeeded in casting doubt on the likelihood of Labour managing to deliver at that price, especially in Auckland. David Shearer might have been all over the paddock this week as to what could be built in Auckland for less than $400,000.

That did not matter. It is the scale of Labour's plan which has gone down well with the punters. They are realistic enough to know the $300,000 figure is bound to change.

National will have to find other avenues for attack - such as Labour relying on government borrowing to kick-start its ambitious housing programme.

Labour says its scheme will become self-financing. But the real question is the extent to which the plan will be subsidised by the taxpayer, be it something as small as bureaucratic advice or as large as forgone interest on capital.

National likewise is keen to avoid any impression that its decision to make 10 per cent of the homes at Hobsonville Pt "affordable" by using different designs and pricing them at less than $400,000 amounts to a subsidy.

The Cabinet papers are at pains to avoid admitting there are any "direct" subsidies, but there is plenty of evidence of indirect ones.

Like the construction and revamp of state housing at Glen Innes, National sees the creation of affordable housing at Hobsonville as a model for further developments on Crown-owned and other land throughout Auckland.

Its problem is that Labour has upped the ante in the debate considerably. In announcing the building of a host of homes under $400,000 at Hobsonville on the eve of last November's Labour Party conference, National must have thought it had trumped anything Shearer could come up with in his leader's speech two days later.

The reverse was the case. The favourable reception for Labour's policy has put the blow-torch on National to get more housing developments started before next year's election.

That is why National is talking tough and warning local government it will not tolerate inertia in freeing land for housing and accelerating approval of building consents.

National has to go for broke. It can rubbish Labour's scheme all it likes. But Labour's advantage is that its plan is not in operation, so it is difficult to judge whether it would work.

It is much easier to pass a verdict on the Greens' new "rent-to-buy" housing package. It is really a huge state house building programme in drag.

Under the policy, low-income families would occupy new, government-built $300,000 homes without having to stump up a deposit or take out a mortgage. The families would instead be required to make a $200 weekly payment to the Government to cover the interest cost on the Crown capital used to build the house. The occupiers would have the option of making additional payments to buy equity in their home.

The Greens won't say how many such houses they want to build. They say the scheme would complement Labour's plan, and the Greens' share of those 100,000 homes would be decided during coalition negotiations.

The policy is easy to comprehend. Its generosity makes it extremely attractive. It seems to make sense.

Wrong. It is a dog of a policy. It should be put out of its misery.

The slow repayment of capital by occupiers under the Greens' scheme would require the Government to go on a continual borrowing binge. There would be huge problems of fairness in terms of cut-off points for eligibility.

There is no incentive or requirement to pay off capital. Occupiers would have the house for life and enjoy cheap rent at $200 a week. It is not clear whether that payment would increase and by how much when interest rates increased - as they inevitably will. It is not clear who would pay the rates and the general maintenance costs.

Labour's scheme at least imposes discipline on buyers to maintain the value of their properties by requiring them to take out a mortgage.

The Greens' policy should carry a health warning. It flashes "unintended consequences" in neon - consequences that would probably have to be picked up by the taxpayer.

Labour has officially welcomed the Greens' contribution to the affordable housing debate. Instead, it should quarantine this Nightmare on Struggle Street before it taints its own policy by association.

- NZ Herald

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